Should You Buy or Lease Your Next Car?

November 2018

A car payment is probably one of your biggest expenditures each month, second only to your rent or mortgage payment. Determining whether to buy or lease your next car is a big decision that affects your monthly budget for many years. Knowing the pros and cons of each option helps you arrive at the smartest decision for your budget.

Pros of Leasing

Some advantages of leasing your next vehicle include:

  • Lower car payments: The payments each month are likely to be much lower when you lease a vehicle. This is because the car payments are only being applied to the estimated depreciation of the automobile along with any applicable finance charges, instead of to the principal and interest on the loan.
  • Drive a nicer vehicle: Since leased vehicles are new or slightly used and the monthly payment is lower, you'll be able to afford a pricier automobile than if you purchased it.
  • Free perks: Auto dealers want to ensure that their leased cars are well-maintained in order to maximize their resale value. Many dealers throw in free oil changes and scheduled maintenance in order to sweeten the deal when leasing cars.
  • Dependability: Since leased vehicles are new or just slightly used, the manufacturer's warranty is still valid. This means you get to drive the vehicle during the years when breakdowns rarely occur, and if they do -- the cost is covered under the warranty.
  • Possible tax advantages: If you're a business owner, leasing a vehicle can possibly provide some tax breaks. Discuss these tax advantages with your accountant.
  • No worries or haggling: You don't have to fret about the resale value of your car or dread haggling with a salesman over the trade-in value. Once your lease is over, just return it to the dealership and hand over the keys.

Cons of Leasing

The disadvantages involved in leasing a vehicle include:

  • Never-ending car payments: Many people who lease vehicles do so repeatedly. This means the payments begin again and they never have the satisfaction of owning a fully paid-off vehicle.
  • Limited mileage: Unfortunately, lease contracts don't include unlimited mileage, therefore you have to keep an eye on the odometer so you don't go over the mileage limit. The dealer can charge additional fees per each mile you go over the limit -- as high as 10 to 50 cents per mile.
  • The automobile must remain in good condition: If the vehicle is returned in a less than satisfactory condition; for instance, an unusual number of dings, dents or other types of damage, you'll be responsible for the repairs.
  • Early termination fees and penalties: If for some unforeseen reason, you break the lease, you could be charged thousands of dollars in fees for the unused portion of your lease terms.
  • Modifications are taboo: Unless the modification is something like professional window tinting, you must return the car as it was on the showroom floor.
  • Your credit must be quite good: Most dealerships require a higher credit score from consumers who want to lease. Therefore, if your credit score is questionable, this may not be an option.

Pros of Buying

The advantages of buying a car include:

  • It's an investment: After paying off the loan, you'll likely be able to recoup some of the money you invested after selling the car. This provides you with trade-in value on your next car or a hefty down payment if you sell to a private individual. It's also exciting not to have to make a car payment each month.
  • Modify as you desire: Unlike leased vehicles, you can modify your own car any way you like, by adding racing stripes, cool wheels, or any other features you covet.
  • No mileage worries: With leased vehicles, you pay high fees for each mile you go over the stated limit, but this isn't true with a purchased car.
  • Financing is easier: Although it's important to have a good credit score so that you can get the best interest rates on your automobile loan, the dealers don't require as high of a credit score  from buyers. Refinancing is another option available to car buyers.

Cons of Purchasing

The disadvantages of purchasing a vehicle include:

  • Depreciation: If you purchase a new automobile, it depreciates approximately a couple of thousand dollars -- or more -- once you drive it off the lot. Each month the car depreciates even more, but over time this balances out because you owe less than the value of the car if you purchased a reputable make and model.
  • Warranties expire: Once the warranty is no longer applicable, you are responsible for any maintenance on the vehicle.
  • Down payments are often necessary: In order to have an affordable car payment, you may need to make a hefty down payment. Some people don't have the money to pay much on a down payment, therefore they may have to settle for a less expensive car.

How FlexSense Auto Loans Can Help

Consider applying for a FlexSense Auto Loan with Best Financial Credit Union in order to make purchasing a car more affordable. You will have flexible payment options compared to those available at other financial institutions. This results in the payments being similar to those of a leased car, yet you don't have any early payoff penalties. No down payment is necessary, and there are no hidden costs. Consumers can use this type of loan when purchasing a brand new vehicle or one that is 5 years old or less. You have all the advantages of a purchased car with the lower payments of a leased vehicle. Check out the benefits of this type of loan when considering your next vehicle options!

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