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Buy or Lease a Car

You should carefully compare the costs of leasing and buying. Leasing is almost always more expensive in the long term. Usually, it takes longer to get full ownership of a car through a leasing agreement than by getting a loan to buy the car. If you buy a car with a loan, it might take five years to pay off. However, if you decide to purchase a leased car at the end of the lease, it might take seven or eight years to pay for the car.

Purchasing a car

If you tend to be a road warrior and use your car excessively, purchasing a car may be the best deal around. You can drive it as much as you’d like.

The main benefits of purchasing a car is that you own the vehicle after you’ve completed the loan payments. The car may even have considerable amount of equity and value. Once paid for, you now have additional money that can be deposited into a savings account or used to pay down other types of debt.

Some drawbacks from buying a car is the potential for higher downpayment requirement or a larger monthly payment. For tight budgets, large down payments or large monthly payments may make leasing a better option.

Leasing a car

The benefits of leasing is a lower monthly payment. Basically, you’re making monthly payments based on the value of the car minus the residual value after the lease. You’ll notice the residual value of the leased car in the lease agreement.

For instance if the vehicle you’re leasing is worth $40,000 and the residual value is $19,000 after a 2 year lease you’re paying for the difference. In this case, your monthly payments is based on $21,000 plus interests, taxes and fees.

  • Leased vehicles often times require larger down payments or perfect credit to qualify for the best lease terms. There are often strict guidelines on mileage usage and wear and tear. Excessive mileage or wear and tear can lead to additional fees at the end of your lease term.
  • Most leased vehicles can be purchased for the residual price after the lease terms have ended.
  • If you’re the type to want the latest and greatest new car every few years, leasing might be the best option for you. Consider, however, that all the payments you’ve made was for usage not towards ownership. You’re basically renting the car.
  • Leased vehicles have mileage restrictions often 12,000 or 15,000 per year. Any mileage over your mileage lease agreement will results in additional fees.

Also, bear in mind that if you make a habit of always turning in your leased car at the end of the lease and then leasing another car, you are putting yourself in the position of paying lease payments into the indefinite future. This will nearly always be more expensive than taking out a loan to buy a car. If you buy a car, you will pay off the loan at the end of the loan term (typically four to five years), and then you will own the car outright.

Today, many new cars last more than 10 years before they need to be replaced. New vehicles are usually the most reliable. You will be covered by a manufacturer’s warranty, which typically covers certain repairs and parts replacements for several years. It is easier to customize and get exactly what you want.

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