Getting a new vehicle is not a luxury purchase for most. Transportation is a must-have necessity to get to work, run errands, go grocery shopping and more. When it comes to getting a new vehicle, it can be confusing when deciding whether to lease a new vehicle or buy one. To begin, you should calculate how much it may cost for both options to see what you can afford. Below are some tips to take into consideration before deciding to lease or buy a new vehicle.
1. Comparing Pros and Cons At A Glance
Potential Pros of Leasing New Vehicle:
• Lower monthly payments.
• Smaller down payment.
• Repairs and maintenance often covered by warranty.
• No need for selling.
• The option to get a newer vehicle after a few years.
Potential Pros of Buying New Vehicle:
• Ability to pay off and own vehicle.
• You can modify your vehicle without breaking the contract or warranty.
• There is no mileage limit.
• You can sell the car at any time once it’s paid off.
2. Monthly Costs
When it comes to monthly payments, if you are looking for affordability, leasing may be the way to go. Lease payments for new vehicles are typically lower than payments for auto loans because they get based on the depreciation of the vehicle you choose and the time frame you will be driving it. An auto loan payment is based on the purchase price. Many people find it easier to budget for a smaller monthly payment.
3. Car Insurance
Whether you decide to purchase or lease a new vehicle, you will be required to obtain comprehensive and collision coverage from your insurance company. You should also consider getting gap insurance to cover you in the event your vehicle is in an accident or stolen. This coverage can help you minimize your loss and will cover the difference between what you owe on the vehicle and what the vehicle is worth.
4. Down Payment
If you choose to buy a new vehicle, you will most likely have to put down a down payment of up to 20% of the car’s cost. The actual amount will depend on factors including your income and credit score. Leasing a vehicle may also require putting down a significant down payment, especially if you are trying to negotiate a more affordable monthly payment. Leasing is a cost-effective way to get a vehicle, but you are putting money towards an investment you will not own.
Some people are more prone to getting into accidents than others because they live in crowded cities or have long commutes. The cost of vehicle repairs can be expensive for both lessees and buyers. The contract for leasing a car is typically two to three years. This means the whole time you have the vehicle, it will still be under warranty. If you decide to buy a vehicle, more repairs are often needed the older it gets. Once your vehicle is paid in full, however, the money you were putting towards a monthly payment can be put towards repairs and maintenance.
6. Depreciation and Leasing Fees
When you own a vehicle, the more miles you put on it, the quicker it depreciates. When you lease a vehicle, this can be a bigger problem because most lease contracts come with mileage limits. If you go over these limits, you may be charged a specific rate per mile. When leasing, you may also get charged certain fees such as an acquisition fee, a security deposit, disposition fee and an early termination fee.
The decision to get a new vehicle is a big one, and it should not be taken lightly. Any major financial decisions should be done after figuring out your budget and performing extensive research. Determine your budget, your needs and your preferences to help you figure out if leasing or buying is best for you. Once you decide to lease or buy, shop around with different competitors to find the best rate.