HARDISON’S TIPS – DECEMBER 29, 2021 – LEASING VS. BUYING -1
The choice between buying and leasing is often a tough call. On the one hand, buying involves higher monthly costs, but you own an asset—your vehicle—in the end. On the other, a lease has lower monthly payments and lets you drive a vehicle that may be more expensive than you could afford to buy. But, you get into a cycle where you never stop paying for a vehicle. With more people are choosing a lease over a loan than they did just a few years ago, the boom in leasing isn’t stopping anytime soon.
The Upside of Leasing
On the surface, leasing can be more appealing than buying. Monthly payments are usually lower because you’re not paying back any principal. Instead, you’re just borrowing and repaying the difference between the car’s value when new and the car’s residual—its expected value when the lease ends—plus finance charges.
The Major Advantages of Leasing
- You drive the car during its most trouble-free years.
- You’re always driving a late-model vehicle that’s usually covered by the manufacturer’s new-car warranty.
- The lease may even include free oil changes and other scheduled maintenance.
- You can drive a higher-priced, better-equipped vehicle than you might otherwise be able to afford.
- Your vehicle will have the latest active safety features.
- You don’t have to worry about fluctuations in the car’s trade-in value or go through the hassle of selling it when it’s time to move on.
- There could be significant tax advantages for business owners.
- At the end you just drop off the car at the dealer.
Disadvantages to Leasing
As attractive as a lease may appear, there are a number of disadvantages:
• In the end, leasing usually costs you more than an equivalent loan because you are paying for the car during the time when it most rapidly depreciates.
• If you lease one car after another, monthly payments go on forever. By contrast, the longer you keep a vehicle after the loan is paid off, the more value you get out of it. Over the long term, the cheapest way to drive is to buy a car and keep it until it’s uneconomical to repair.
• Lease contracts specify a limited number of miles. If you go over that limit, you’ll have to pay an excess mileage penalty. That can range from 10 cents to as much as 50 cents for every additional mile. So be sure to calculate how much you plan to drive. You don’t get a credit for unused miles.
