What's Your Best Deal on Wheels: Buying or Leasing?
Navigating your car through city traffic can be a snap these days - just plug the coordinates into your GPS and off you go. Navigating your way through the market for an new car, though, can be much trickier. Here's a primer on your options when it comes to buying or leasing a new vehicle.
What's a Lease?
Leasing differs from buying a vehicle in that it's essentially a long-term rental. After making a down payment, your monthly payments are based on the difference between the sticker price and the expected value at the end of the term, which most often runs 36 months. You can also expect to pay a refundable security deposit, registration, taxed and costs upfront.
Leased cars generally come with annual fees mileage limits of 12,000 to 15,000 miles and stipulations for what an acceptable amount of "normal" wear and tear is. If you turn the car in with excess mileage or a lot of wear and tear, you'll be hit with penalty fees. There are also hefty early termination penalties if you decide to turn the car in before the lease period ends.
The car will be under the manufacturer's warranty with bumper-to-bumper coverage for the length of the lease, though, which reduces concerns about repair bills. But you'll probably be required to follow the manufacturer's maintenance schedule, on your dime, while you have the car.
Since you're not paying the entire cost of the car, you have the advantage of lower monthly payments than if you bought the same vehicle. One upshot of this is that you may be able to lease a car that otherwise would be out of your price range. This tends to be the big attraction of leasing.
Buying a car
Purchasing is more straightforward: You pay the entire cost of the car, usually with financing from a lender like the Town of Hempstead Employees Federal Credit Union. After the manufacturer's warranty runs out, repairs are your responsibility. However, since the car is yours, you decide how many miles you want to drive it and when you want to change it for a different vehicle. The upfront taxes are higher than with a lease, and the monthly payments generally are, too, for the same type of car.
The majority od new-car loans run from 3 to 6 years. As you make monthly payments, you build equity in the car until, when you make your final payment, the car belongs to you. After that, you're payment-free for as long as you keep the car.
Both leasing and buying can make sense, depending on your circumstances and on what direction you want to take.
Buying a car means that with each payment, you own a little bit more if the vehicle, and that down the road you may be able to drive for years without payments.
If you want a car that's more expensive than you could afford to buy, and you can stay within the annual mileage limits, leasing might be the right fit. At the end of the lease period, however, you'll face a decision: continue the cycle of leasing with a new three-year contract, or buy your own vehicle.
Cait Klein, Nerdwallet