The Benefits of LEASING a Car:
Low Down Payments -- Even though a lot of the advertised lease deals assume a down payment, you can often get the dealer to limit it just by asking. Of course, the more cash you come up with initially, the lower your monthly payments.
Low Monthly Payments -- Since you are only paying off the depreciation on the car -- not its full value -- your monthly payments are much lower than if you opt to finance the purchase of the entire car over the same period of time.
Easy Turnover -- Assuming your car is in good shape, when your three or five years are up, just stroll into the dealer, hand over the keys, and drive out with a brand new car and a new lease arrangement. You don't have to bother with selling the car or haggling with a dealer over trade-in value. That was all taken care of beforehand.
The Disadvantages
No Equity -- Similar to paying rent on an apartment, your lease payments don't go towards owning anything. Unlike traditional financing, you can't look forward to the day when the payments will stop and you can drive your own car free and clear.
Lack of Flexibility -- You pay a big penalty if you want out of the lease before the full term. Bailing out early may cost you as much as six extra months of payments, depending on your leasing company.
You May Pay Extra -- Most leases charge an extra 18 or 25 cents for each mile you drive over a certain limit. Typically the lease agreement grants 10,000 to 15,000 miles per year. (Drivers average 15,000 miles per year.) Also, you'll have to pay up for any damage to the car beyond normal wear and tear when you turn it in. One way to avoid the mileage charge is to buy more miles at a reduced rate if the lease allows.
Disposal Fees: Besides over mileage and wear and tear, most lease companies change a disposal fee of $300 to $500 at lease end which helps them recoup some of the reselling of the vehicle cost.
Insurance May Come Up Short -- If your gets stolen or is in an accident and your insurance company declares it a total loss, your insurance company will only reimburse you for the car's market value, which might not cover what you still owe on your lease. You can buy extra "gap coverage" to protect against this, and some lease deals include it automatically. (In NY and NJ, gap coverage is included in the lease.) Most insurance companies do not reimburse for any initial upfront cost such as down payment or mv fees. |
The Benefits of BUYING a Car:
By far the greatest benefit of buying a car as opposed to leasing a car is that you may actually own it one day. Implied in this benefit is that you'll one day be free of car payments. The car is yours to sell at any time and you are not locked into any type of fixed ownership period. On a lease, there are mileage restrictions.
Mileage -- By owning a car, you're free to rack up the mileage without economic penalties or restrictions. The mileage will effect the value of the car and the time that it takes to build equity.
Insurance -- When you buy a car, the insurance limits on your policy are typically lower than if you lease.
Monthly Payments -- The most obvious downside of owning versus leasing is the monthly payment, which is usually higher on a purchased car. (Unless there is a low rate finance offer from the dealer.) Additionally, some dealers usually require a reasonable down payment, so the initial out-of-pocket cost may be higher when buying a car.
Equity -- When you purchase a car, your payments reflect the balance of the car that is financed, usually amortized over a four - to six-year period. Depending on the down payment, finance term and interest rate, you may start building equity before you hit the half way mark on the loan term.
Like the monthly payments of a mortgage, monthly car payments are divided between paying principal and interest. With a low interest rate loan, you build up equity faster as more of your monthly payments go towards principal than interest.
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