Category Archives: Finance and Insurance
Can’t decide whether you should lease or buy your next vehicle? Don’t worry because you are just one of many people who contemplate this purchase decision on a daily basis in the United States. Just as kids and teenagers should be taught in school how to open a checking account, how to responsibly use a credit card, what to do to improve their credit history, how to change a flat tire, why you don’t wash your neon yellow shirt with your white Polo golf shirt, someone who has molded your mind thus far in life should have explained the differences between leasing and purchasing an automobile. Moreover, you need to fully understand what type of impact each could have on your daily life financially and logistically.
If you haven’t come to this conclusion as of yet, let me be blunt…Leasing a car versus buying a vehicle is very different. Buying or leasing a car boils down to two basic things; the person, primarily their driving habits, and the financial situation. When you weigh these two aspects against one another, the advantages and disadvantages of both choices will become evident and ultimately place you in the appropriate purchase bucket for you.
If you are an individual who intends to have the same vehicle for an extended period of time, let’s say a Nissan sedan, and prefer more flexibility when the time comes to sell the vehicle, buying a Nissan is the choice for you. On the flip side, if you desire to drive a new vehicle every two years or 36 months (these are two standard time frames to lease a vehicle for), the best financial decision for you is to lease your car. Here is a fun fact as you consider this point; a typical car lease lasts half the time of a typical car loan. Once the lease is up, you can move on to your next cool ride.
Another factor that may place you in the leasing bucket is whether or not your vehicle of choice is out of your price range. Reason being, leasing a car is best understood by the masses when compared to renting a shore house for the summer. Thus, you are only paying for the time and use (mileage) of the vehicle for the given and agreed upon lease term. By not buying the whole car, you will lower your monthly payments by 30% to 60% when leasing. You are only paying for a portion of the car and as a result your monthly payment is lower compared to your monthly payment when financing the vehicle and being responsible for the entire car regardless if you drive it for two years or 15 years. Plus, you pay sales tax only on the portion of the car you finance. To be exact, you finance the cost of the depreciation of the car while you’re driving it…that is your lease payment.
Furthermore, leasing has another financial aspect making leasing a better choice relative to buying a new car — like the fact that up-front out-of-pocket expenses are generally lower. For example, the down payment is usually low, and sometimes nonexistent. Have you ever heard the term “Sign and Drive”? This commonly used term in the auto industry simply means that you put no money down, sign the lease agreement and drive off into the sunset. Not only are monthly payments much lower than loan payments, leases are often easier to obtain than a loan.
Are you too busy to worry about the wear and tear of what will most likely be the second largest purchase you ever make in your life? It’s okay if you are because most Americans dread the chore and cost of maintaining their vehicle. When leasing a vehicle, the lease terms already include the wear and tear on the vehicle as well as the specific mileage so you never have to worry about anything aside from the rare $19.99 oil change every 6 months or so (really depends on the amount of miles between oil changes). Plus, some leases can include the cost of basic vehicle maintenance. To put this into concrete numbers, leasing saves the average car owner up to $1,200 a year on repair and maintenance fees. Eliminating the financial headaches of depreciation and mechanical problems are two driving forces that push people into leasing because knowing that your only responsibility is returning the car to the dealer at the end of the lease is gratifying in its own right. Keep in mind that you have also erased the headache of negotiating the value of your trade-in at the end of your lease because you don’t have one. You just drop it off at the dealer with the keys!
The length of a lease or ownership can be looked at from a number of different angles, and once again, comes down to your personal life. In a six year period, you could have leased two different vehicles or owned a single one. Looking at this from one of two ways, either you would have to return and repay for a new vehicle, or you have been given the opportunity to choose an entirely new model.
Those who plan on keeping a vehicle long term will benefit financially once the vehicle is paid off, avoiding the need to repay down payments and never ending monthly lease payments. Also, going beyond the pride in ownership, buyers will be able to customize the vehicle however they like, and sell it wherever and whenever they please. Did you know consumers in the USA on average spend $700 on vehicle modifications? Individuals who decide upon leasing will not have this luxury; however, depending on the purchase, some businesses consider a car lease a tax write-off.
Depending on your financial situation and priorities behind choosing a new car, we recommend you speak with our experts here at Windsor Nissan in East Windsor, NJ, who will be able to further help you weigh the options and make a decision you feel happy and secure with. To be honest, most people do not lease, or even consider leasing as an option, because lease contracts are confusing and Americans do not like to admit what they do not know. Hopefully, this article eliminates this bullet point since you should be far more educated than the average consumer upon reading this.
As the debate continues, a recurring theme that weighs on the decision to buy a car is flexibility. Mileage limits are not a problem so if you wake up on Wednesday morning and decide that you want to drive across the country, it is your car so you can do as you please. Plus, if you are committed to a lease and your driving needs change…tough luck. It is costly to terminate a lease early.
After buying a car, you can add the vehicle as an asset to your personal balance sheet because again, you own the car. Remember you are more or less borrowing the leased vehicle from the leasing company who is the true owner of the car. Many people view actual ownership of the vehicle as an important advantage because it can be more economical over the long run as you build equity in the vehicle over time.
While leasing may appear to be the best bang for your buck, especially if you avoid extra mileage fees, there are extra expenses with a lease that you must be aware of. Insurance rates are usually higher for leased vehicles since lease coverage may include gap insurance, which pays off what is still owed on the lease in the event the car is totaled. And, by returning your leased car every three years (really whatever your lease term is), if you lease a car that requires a down payment, that expense will come out of your pocket each time you get a new lease. Plus, each time you turn in your old car for a new one, there are added fees like doc, motor vehicle, NJ tire tax, etc..
Now consider the person who purchases or finances a car. At the end of five years of car payments, the car now belongs to him or her. Five years was the standard finance length for Americans, but leading up to the financial meltdown, many consumers were entering lengthier car loan terms along the lines of 72 and even 84 months. The pendulum has swung back in the other direction as many bank institutions prefer 60 month loan terms and therefore make extended term options so costly that most pass and agree to a 60 month car loan term. It might not have much value on the open market, but if you’re willing to drive it for several more years, it becomes nearly free transportation until the wheels fall off.
To put an end to this debate, here are the basic nuts and bolts in summary. Leasing makes it easier, and/or possible, to get more car for less money. You are essentially paying, “renting”, for a portion of the car, instead of buying the entire automobile. So, like many things, leasing looks great in the short run. However, if you really pencil the dollars and cents and you take the long view of economics, you will see that leasing will eventually be more expensive. It is more costly because once you begin leasing, there is a very high likelihood that you will continue to do so forever. Auto manufacturers’ and car dealers often entice leasing customers with private lease pull ahead offers that enable the lessee to return their vehicle 3 months early with no penalty and get into a brand new model. And by the way, this is a great offer and there is no reason not to take advantage of it; you would be silly not to. But, this means you will always have a car payment and never own anything.
Ultimately, leasing isn’t only a dollars-and-cents question — it’s about personal tastes and priorities. Whether you choose to lease a car or buy a new car, you must educate yourself so that you can negotiate a great price at the dealership either way.