Sunday, June 10, 2012

s It Cheaper to Buy or Lease a New Car?

There are two factors to consider when you lease a new car: the monthly payment and the long term costs. If you consider only the monthly payment, a lease is typically a less expensive option for your new car. If you are concerned with how much the car will cost you over time, like the net financial value, then purchasing a car is the less expensive option.

Monthly Payments
The monthly payments on a car lease tend to be lower than payments toward a car loan. You are not paying for the whole cost of the car; instead, you are only paying to borrow it for a certain number of months. The lower monthly cost on a lease versus a loan is particularly true for those with less than perfect credit. Bad credit will make leasing a car more expensive, but it will not affect your monthly payment on a lease as much as a loan. In fact, if your income is high enough, you may be able to lease even a very pricey car you could not afford to buy. With a loan, on the other hand, the lender has more at risk. As a result, the loan interest rate will be more affected by your credit score.
Vehicle Maintenance
Leases typically cover a certain degree of wear and tear maintenance. Of course, if you wreck your car or otherwise cause damage, you will still be responsible for the repairs. However, routine oil changes and other necessities may be covered in your lease contract. Some luxury leases also include car wash and detail services. These would cost you quite a bit of money if you owned the car, and the lack of maintenance required on a leased auto significantly drives down the cost of leasing.
Down Payment
The most prominent factor making a loan more expensive to obtain is the down payment required to secure a car loan. The down payment can be as low as 3% of the car's total value. Some dealers may even offer no down payment loans, but these will have much higher interest rates and monthly payments. If you do not have the cash to put up a down payment, then a lease may be a better option for you while you save money in order to own your own vehicle.
Assets Gained
Even though it is true leases cost less day-to-day, taking out a loan to buy a car makes more sense in the long term to build a more stable financial profile. You are building equity in the vehicle with each payment instead of simply giving the money to a lender. Of course, a car's value unfortunately depreciates over time instead of appreciating. This means you will only get to keep a portion of the equity you pour into the car loan once it is paid off. A portion, though, is still bigger than nothing, which is what you will end up with at the end of your auto lease. For this reason alone, leasing is more expensive in terms of net value.

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