Cars are a necessity especially to those living in parts of the world without an efficient public transportation. To a dapper gentleman, owning a classic automobile is more than just the service provision it offers but rather a compliment to his overall STYLE. In the western world most specifically, there is the option of either leasing or buying a car. This post is aimed at analyzing this two options and providing guidance to help people in deciding which is the better option depending on their purchasing power and the type of car involved.
First let me say it is likely better to lease a car. Even if you put a lot of miles on cars you can set up a higher mileage lease from the very beginning. There are so many variables that equate up to a car (especially a luxury car) losing value in the future – it is not worth the risk. Allow the lender deal with depreciation.
For example if someone buys this new luxury car for about 70,000 USD and in about two and a half years you are ready to trade out of it with about 40,000 miles on it – it’s almost out of factory warranty and who knows what the current market value on the vehicle could be. We can assume the person had a super low interest rate on the car and took a 72 months loan out to keep the payments relatively low. Even if he put 10% down, that still won’t suffice if we consider the sales tax on the principal amount.
We all know that you pay off a car at a rate comparatively lower than its depreciation hence, there is a chance that the balance on the vehicle is higher than its current worth – negative equity. Trading out of this vehicle entails ushering that negative balance into a new loan with a higher payment. Now if this person would have leased the same vehicle at the time of buying, he could have most likely put 4000–5000 USD down and would have a similar payment and in 36 months he could be wiping his hands clean of the vehicle and swapping with a freshly manufactured one. Thus I am advising you to lease your next vehicle because:
1. You can get a new luxury car every 3 years
2. You will not have any scary maintenance problems that are not covered in the warranty (not always, but about 90% of the time).
3. Your monthly payments are typically much lower than buying.
4. If you decide to buy at the end of the lease, you are already familiar the vehicle’s history.
5. If you need to get out of a vehicle lease, you can do so after a certain period of time.
6. Little or no down payment
7. Save money on taxes
Some cons associated to car leasing are:
1. Paying off the full loan is likely to take longer than a regular purchase
2. Vehicle must be kept in excellent shape to avoid extra charges at the end of the lease.
3. You are compelled to visit a dealership every three years.
4. Sometimes extra costs are required for gap insurance (other times it is covered by the manufacturer)
5. You are limited by mileage per year, which will work against you if you are always on the road like a delivery driver or taxi cab.
Note: You should always read documents carefully about Lease terms and conditions as each manufacturer/bank has different requirements about swapping a lease.
Also worthy of note is the fact that the dealership usually end up at the begging end of the bargain at the end of the lease since newer models are now a preference to the customer. With this, the dealership tend to loose money (about $300/day) each day the used vehicle sits on their lot.
In a nutshell, you should only consider buying a vehicle if it is really cheap and it is meant for a service like taxi cab or products delivery.
Let us know if you agree or disagree in the comment section below.