Whether to lease or buy a car is a personal decision. There are many factors to consider, and they can get mighty confusing. The pros and cons to leasing or buying a car are many, and the intricate details can make anyone's eyes lose focus. There are also misconceptions in the car industry that can sway a nave consumer in the wrong direction, so knowing what you want and need and becoming educated should steer you to the right road.
Benefits
Leasing a car has lower out-of-pocket and maintenance costs, and some leases offer down-payment options. Monthly payments are lower than buying, and consumers can enjoy a new car every few years. Some leases even offer GAP insurance, while new car loans don't. Buying a car offers pride of ownership after the loan is paid off. The owner is not locked into keeping it and can sell it at any time. The owner can put as many miles on the car as he wants, and insurance premiums are cheaper.
Considerations
A consumer rents a leased car and has car payments until the lease expires. Mileage is restricted, and extra fees apply if the driver goes over the limit. Some leases tack on fees for wear and tear and termination fees apply if a lease is ended before it expires. Insurance premiums are also higher. Buying a car means higher monthly payments. New cars depreciate, and loan payments made in the early part of the loan go toward interest rather than principal, and some consumers find themselves owing more on the car than it's worth.
Options
There are two types of leases: closed-end and open-end. In closed-end leases, a consumer can hand over the car to the leasing company at the end of the lease. In open-end leases, a consumer can acquire loan payments at the end of the lease for the value of the car that's left and eventually own it. Open-end leases are typically used by businessmen who use their cars a lot and who deduct car expenses on their tax returns. New car loan financing options can be negotiated through a dealer or with an outside bank or credit union.
Costs
The first month's payment, a security deposit, an optional down payment, and registration and related fees are paid at the time a car lease is signed. A down payment, taxes, registration and related fees are paid at the time a new car is bought and a loan secured. Monthly loan payments when buying a car include interest over the life of the loan.
Misconceptions
Common misconceptions can lead people to make uneducated decisions regarding whether to lease or buy a car. For example, a consumer can put high mileage on a leased car, and he doesn't have to own a business to lease a car. Buying a new car doesn't mean a consumer has to also buy an extended warranty, road hazard insurance and interior and undercarriage protection even if the dealer insists on it. It's not necessarily more expensive to finance a car through a dealer than from a private bank.
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