Pros and cons of leasing a car compared to buying one
Are you trying to decide whether or not you should buy your next car, or lease it instead? This guest post written on behalf of Windmill Car Leasing offers some of the pros and cons for the two options to help you decide:
The Advantages of Leasing a Car
- Since you will only be paying for the depreciation value, a very small portion of the car’s full value, you will have very low monthly payments.
- In some cases you will be able to negotiate a vehicle with a low down payment, or even “no money down”. This means that less of your capital will be tied up, and you will have more cash for lucrative investments.
- You will be able to drive a nicer car than you would be able to if you were buying. As your lease will expire every 3-4 years and you will get another one, you will always be driving a car which is brand new.
- When you are finished with the car after the lease period, you will be able to simply hand it back to the dealer and not have to worry about reselling it.
- Some businesses might enjoy certain advantages with leasing when it comes to taxes.
Disadvantages of Leasing a Car
- Some contracts will charge you a very high price for early termination of your lease. For example, if you get in a car crash or the car is stolen you will sometimes have to pay up to 6 months worth of payments just to end the lease early. Sometimes your insurance pay-out will barely cover this balance due on the lease, which will leave you short. However, to avoid this you could opt for “gap insurance” which is only a little extra per month.
- When you lease a car, it will likely require a much higher amount of insurance than you might normally have. This can be much more expensive!
- If you have a less than perfect credit history it can be very difficult to get approved for a lease.
- Most leases will limit the number of miles that you can drive per year. They will charge fees for any extra mileage, which can add up quickly.
- By the time you finish making payments on the car, you don’t own it at all. The money that you have been paying has not been invested in purchasing anything.
Advantages of Buying a Car
- The greatest benefit of buying rather than leasing is that you will eventually have ownership of the car. You will then be free of car payments and you will be able to sell the car at any time.
- Your insurance will be much lower on your vehicle than if you are leasing.
- You will be able to drive as much as you want without thinking about extra mileage charges.
The Disadvantages of Buying a Car
- The monthly payments when buying a car on finance are much higher than lease payments.
- Most dealers will require a large down payment, which means that you will need a significant amount of capital to invest in the car.
- Cars depreciate in value very quickly, so when you do eventually sell the vehicle you will have lost quite a bit of equity.
- Your monthly payments will include a great deal of interest as well as paying down the loan.
These are a few of the advantages and disadvantages associated with buying or leasing a car. Think about your personal needs and desires to determine which option is the best for you.