There are many things to consider when deciding whether to buy or lease your next\u00a0new automobile. To help you decide, we are reprinting an excerpt from\u00a0www.leaseguide.com, with their permission. This website will give you the answers and\u00a0information necessary for you to make an educated and informed decision.<\/p>\n
Leases and loans are simply two different methods of automobile financing. One\u00a0finances the use of a vehicle and the other finances the purchase of a vehicle. Each has\u00a0its own benefits and drawbacks. It\u2019s not possible to simply say that one is always better\u00a0than the other because it depends on your own particular situation and preferences.<\/p>\n
You must not only look at the financial comparisons but also at your own personal\u00a0priorities. Is having a new vehicle every two or three years with no major repair risks\u00a0more important to you than long-term cost? Are long-term cost savings more important\u00a0to you than lower monthly payments? Is ownership more important to you than low\u00a0upfront costs and no down payment?<\/p>\n
Buying and leasing are different.<\/strong><\/p>\n When you buy, you pay for the entire cost of a vehicle regardless of how many miles\u00a0you drive it. You typically make a down payment, pay sales taxes in cash or roll them\u00a0into your loan, and pay an interest rate determined by your loan company. You make\u00a0your first payment after you sign your contract.<\/p>\n When you lease, you pay for only a portion of the vehicle\u2019s cost, which is the part that\u00a0you \u201cuse up\u201d during the time you are driving it. You have the option of not making a\u00a0down payment, you pay sales tax only on your monthly payments (in most states), and\u00a0pay a money factor that is similar to the interest rate on a loan. With leases you may\u00a0also pay extra fees and possibly a security deposit that you do not pay when you buy.\u00a0You make your first payment at the time you sign your contract.<\/p>\n If you lease a car that costs $20,000 but is worth only $13,000 after 24 months, you\u00a0pay for the $7000 difference (this is called depreciation), the finance charges, and\u00a0additional fees. When you buy, you pay the entire $20,000 plus finance charges. This is\u00a0fundamentally why leasing offers significantly lower monthly payments than buying.<\/p>\n Lease payments are made up of two parts: a depreciation charge and a finance charge.\u00a0The depreciation part of each monthly payment compensates the leasing company for\u00a0the portion of the vehicle\u2019s value that is lost during your lease. The finance part is\u00a0interest on the money the lease company has tied up in the car while you are driving it.\u00a0The principal pays off the vehicle purchase price, while the finance\u00a0charge is loan interest. However, since vehicles depreciate in value by the same\u00a0amount regardless of whether they are leased or purchased, part of the principal charge\u00a0of each loan payment can be considered as a depreciation charge, just like with leasing.\u00a0It is money you never get back, even if you sell the vehicle in the future.<\/p>\n The remainder of each loan principal payment goes toward equity. It is what remains of\u00a0your car\u2019s original value at the end of the loan after depreciation has taken its toll.\u00a0Equity is resale value \u2013 what you get back if you sell the vehicle. The longer you own\u00a0and drive a vehicle, the less equity you have.<\/p>\n So, buying a car with a loan is essentially like putting money into a declining-value\u00a0savings account. You never get out as much as you put in. A portion of every payment\u00a0you make is lost to depreciation, a terrible investment by any measure.<\/p>\n Leasing is similar to buying but without the \u201csavings account.\u201d You only pay for what\u00a0you use. It is true that you\u2019ll own nothing at the end of a lease, but what you do not\u00a0own is the same part of the car \u2013 the depreciated part \u2013 that a buyer also does not own\u00a0at the end of his loan.<\/p>\n There are hidden cost differentials to consider. Automobile insurance options may differ\u00a0when you lease rather than own a vehicle. When you purchase a new vehicle and sell it\u00a0or trade it in you will receive a dollar amount that has been determined by means of a\u00a0book value. When you return a lease vehicle, although the dollar value has been\u00a0determined at the time you signed the lease agreement, you may be assessed other\u00a0costs (i.e. excessive wear and tear, mileage beyond the agreed terms, etc.). You will be\u00a0liable for these cost at the termination of the contract. Therefore, it is imperative you\u00a0review all documents before you sign the agreement.<\/p>\n DMCC is a 501 (c)3 nonprofit organization committed to educating consumers on financial issues and providing personal assistance to consumers who have become overextended with debt.\u00a0 Education is provided free of charge to consumers, as well as personal counseling to identify the best options for the repayment of their debt. To speak to a certified credit counselor, call toll-free 866-618-3328 or email\u00a0<\/em>contact@dmcconline.org<\/em><\/a>.DMCC is located at 1330 SE 4th Ave, Suite F, Fort Lauderdale, FL 33316.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":" There are many things to consider when deciding whether to buy or lease your next\u00a0new automobile. To help you decide, we are reprinting an excerpt from\u00a0www.leaseguide.com, with their permission. 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