Leasing
vs. Buying
BUY VS. LEASE? Let’s
look at leasing first. There are many reasons why people choose
to lease a vehicle; lower monthly payments, little or no down payment,
assurance of warranty, and the versatility of getting a new car
every few years are certainly some of the advantages. But leasing
isn’t for everyone. When you lease a car you do not own it.
You are renting the vehicle for a predetermined number of years.
This leaves you liable for any damage and excessive mileage on the
vehicle when your lease is up, which could add up to thousands of
dollars at the end of the term if you are not careful. Typically
a higher credit score is also needed to lease a vehicle and the
rock-solid lease contracts can be very difficult to get out of if
you change your mind before your lease runs out.
Now let’s check
out buying. When you buy a vehicle, it is your asset once your loan
is paid down. There is no contract to get out of, so you can sell
it at anytime. And any excess miles or wear and tear you put on
it are your business and no one else’s! But buying is not
perfect. Typically monthly payments are higher when you buy and
it is also no secret that most cars significantly depreciate (lose
value) when they drive off the car lot. Meaning you could find yourself
upside-down on the loan (owing more on the loan than the car is
worth) pretty quickly.
Other Pros and Cons:
Ownership
Leasing: You
don’t own the vehicle; you must return it at the end of the
lease unless you choose to buy it.
Buying: You own the vehicle once you make the last
payment.
Up-Front Costs
Leasing: There
may be up-front costs such as first month’s payment, refundable
security deposit, capitalized cost reduction, taxes, registration
or other fees.
Buying: Some of the up-front costs could include
the down payment, taxes, registration and other fees.
Payments
Leasing:
Monthly payments can be lower (or they could be the same with a
shorter term) since you pay only for the vehicle’s depreciation.
Buying: Monthly payments can be higher (or for
a longer term) because you are paying for the entire purchase price
of the vehicle.
Early Termination
Leasing: If
you end the lease early you are responsible for the lease pay-off,
plus any early termination charges.
Buying: If you end the loan early you are responsible
for the loan pay-off amount.
Returning the Vehicle
Leasing: When
the lease is up you return the vehicle to the lender and pay any
end-of-lease costs, then walk away.
Buying: Not required, but when you want a new vehicle
you may have to sell or trade the vehicle.
Future Value
Leasing: The
future value of the vehicle is predetermined by the lessor and the
leasing organization assumes all the risk for the vehicles value,
not you.
Buying: You assume all the risk of the vehicle’s
future market value.
Mileage
Leasing: All
leases have mileage limitations that you negotiate upfront. If you
exceed these limitations you will be assessed a mileage penalty
at the termination of the lease.
Buying: There are never limits to the miles driven
on the vehicle, but the more miles you drive the lower the vehicle’s
trade-in or resale value will be.
End of Term
Leasing: The
current lease has ended and you must decide to purchase the leased
vehicle outright or lease another vehicle.
Buying: You made your last payment and you now
own your vehicle.
Additional Information
Leasing:
There can be a few more advantages of leasing; leasing is beneficial
for people who want new vehicles every 2 or 3 years. Leasing may
be a better choice if the vehicle is being used for business, you
can usually deduct the lease payments as an expense rather than
deducting the depreciation which can be less.
Buying: Although
it may require higher monthly payments or longer financing terms,
there are no restrictions for mileage, how or where you can use
the vehicle and the money is going towards something you will eventually
own.
DUFCU offers 84 month
car loans at a low interest rate. Find out more at our Auto
Center or apply
online. |
