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At a glance: Lease or buy?
|Potential benefits of leasing a car||Potential benefits of buying a car|
Shopping for a new car? Maybe your current ride has some wear and tear, or you’re interested in switching to a car with better gas mileage. If you’re wondering whether your best move is to lease or buy a car, it’s worth considering both options.
If you’re looking for the most cost-effective option over the long term, buying a used car and keeping it for a few years after you’ve paid it off is often the best choice. But what if you like having the newest technology or the most-up-to-date safety features? Leasing might give you the freedom to make the periodic upgrades you’re looking for without breaking the bank.
Lease or buy: 3 factors to consider
If your main goal is to get the lowest monthly payments, leasing could be your best option. Monthly lease payments are typically lower than auto loan payments, because they’re based on a car’s depreciation during the period you’re driving it, instead of its purchase price.
Thinking about financing your next car? Your required down payment could be around 10% to 20% of the car’s total cost.
Leasing may also require significant upfront costs, including the first month’s payment and a down payment — especially if you’re interested in negotiating the lowest possible monthly payment.
The cost of repairs can hit both car buyers and lessees. Cars are typically leased for three years, so if you lease a brand-new vehicle it will likely be under warranty for the duration of your lease. But you may still have to pay for maintenance and repairs, and you might even be required to replace worn tires, scratched windows or other blemishes when you return the car.
As cars get older, the cost of repairs can rise significantly. If you decide to buy, you’ll want to budget for regular maintenance and upkeep.
If you’re a car owner, the more miles you drive, the faster your vehicle depreciates. But putting lots of miles on your car can be an even bigger problem if you want to lease. Auto leases usually come with mileage limits, typically set around 12,000 miles per year for a standard lease. Going over that number could mean being penalized at a rate of about 15 cents a mile.
Here are some of the other unique fees you may have to pay if you choose to lease a car.
- Acquisition fee — This covers the leasing company’s administrative costs for arranging the lease.
- Security deposit — This might be roughly equal to one month’s lease payment.
- Early termination fee — You might be charged this fee if you end the lease contract early.
- Disposition fee — This covers the leasing company’s costs for cleaning and selling the car at the end of the lease.
For many drivers, the idea of being locked into one specific car over a long time period is … less than ideal. If that sounds like you, leasing might be your best bet.
But leases may not be as flexible as you think. If you get tired of your car or your needs change, you may want to think twice about turning the car in before the end of your lease. If you break your lease early, you could be on the hook to pay some steep penalties. You could even be required to cover all of the remaining lease payments and pay additional penalties on top of any other fees. Ouch.
As with any major financial decision, it’s important to do your homework before deciding to lease or buy a car. Ultimately, the best choice for you depends on your preferences, your budget and your ability to handle the expenses you might incur down the road.