A big decision while purchasing a vehicle deciding is whether to buy or lease. Leasing is growing in popularity, and represents a viable alternative to buying. It costs less, because you're basically paying for the estimated depreciation of the car over the lease period, rather than paying for the whole value of the car. Of course, all you're getting is the use of the car during that period, rather than actual ownership of it.
Here is a quick rundown of some of advantages and disadvantages of leasing rather than buying, to help you make your decision:
- As we mentioned, a lease costs less than a purchase.
- You don't have to worry about a large down payment. When the lease begins, you'll just have to pay the first month's payment, title, taxes, registration, banking fees, and a security deposit.
- You don't have to worry about selling the car when you no longer want it.
- As we mentioned, you don't actually own the car.
- You aren't able to customize the vehicle or make modifications to it as you could if you bought it.
- There are additional charges for excessive mileage (for example, more than 15,000 miles a year) and any damage to the car.
- If you have the option to buy the car at the end of the lease (as is often the case), you'll have to make that decision as soon as the lease ends, whereas if you owned the car you could decide exactly when to sell it.
- Generally, you will need to have the maximum insurance coverage limits.
For these reasons, leasing is generally most attractive for people who want to (and can afford to) drive a new car every three or four years.
If you do decide to lease, there are a few things you should know. First, understand the lingo.
- Capitalized cost is the leasing equivalent of the selling price. This is the total-package cost, which you want to minimize.
- Residual value is the estimated worth of the car at the end of the lease. Your monthly payments will be based on the difference between these two amounts, plus an interest expense called the money factor.
But these are just the basics. The world of leasing is complex, and the dealer is an expert at it, so if you don't educate yourself you will be at a distinct disadvantage.
Second, negotiate the capitalized cost of the vehicle. The dealer will want you to lease the car at its sticker price, but you should talk him or her down as far as possible, just as you would if you were buying the car. In order to know what a reasonable price is, follow a similar process to the one described in the purchasing section.
Third, make sure you understand what conditions will end up costing you extra. For example, what is the mileage limit, and how much is the penalty if you exceed that limit? The per-mile charges can be extremely high, so be careful.