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  • LEASING VS. BUYING

    Leasing a car has become more popular way to get into a new car then it used to be. Leasing has its drawbacks and its bonuses. Leasing is very popular to a large number of people because it keeps them in newer model cars. That's one of the bonuses of leasing a car is that when you're lease term is up you can turn it in for a newer model. Buying and selling your car is the traditional way but leasing seems to be coming up as the future of getting a new car.

    Leasing and buying both have their share of drawbacks and bonuses, but how do they stack up against each other? Here is our comparison of the two broken into important questions most often asked.

    What are the costs going to be up front?:

    Leasing:
    With leasing the up front costs are normally less than that of buying. The up front costs of leasing may include:

    Security deposit (refundable when the lease is over)
    First months payment
    Registration and taxes
    Capitalized cost reduction (a one time payment like a down payment but less) Misc. leasing fees the dealer may have


    Buying:
    Buying a car is normally associated with high up front costs. These high up front costs are what makes people think twice before buying a new car.
    These costs may include:
    Down payment (normally a large sum - 20%-30% of the cars cost)
    Taxes
    Registration
    Licensing fees
    Extended warranty costs
    Dealer fees that may occur

    How does the mileage work?:

    Leasing:
    Leasing a vehicle limits the number of miles you can rack up without having to pay extra fees. If you go over their allotted amount of miles, you will need to pay them for these extra miles. If you are a person that puts quite a few miles on a car, more than 13,000 - 16,000, you might get higher monthly payments in lieu of paying fees at the end of your lease.

    Buying:
    The only mileage worries when buying a car would be the cars value in a few years when you want to get another car. The amount of miles on a car greatly affects the trade in value or the flat out worth of the car. When you try to get rid of your car, the miles on the car may reduce the value and price you can get for the car.

    What will my monthly payments be?:

    Leasing:
    The monthly payments for leasing a car are normally less than that of buying. The monthly payments are smaller because you aren't paying for the car you're paying for depreciating the value of the car. Depreciation value, taxes and rent charges (interest payments) are what you will be paying for in your monthly payments. The depreciation value also includes an allowance for mileage. Your payments might be higher if you are a high mileage driver.

    Buying:
    The monthly payments for buying a car are normally higher than those of leasing. When you buy a car, your monthly payments are not just a rental fee as in leasing, they are a breakdown of the actual cost of the car plus and fees and taxes that were added on to the total price. Your down payment also affects the size of your monthly payments. The higher the down, the less the monthly payments.

    Who actually owns the car?:

    Leasing:
    Leasing a vehicle is more like renting one than buying one. When leasing you never actually own the car. When your lease is over you must return the car unless you would like to buy it from them at that time.

    Buying:
    When you buy a car, it is yours. When you make your monthly payments, you are paying to own the car. When you are done with your payments, you own the car outright.

    What happens when I want to end my agreement?:

    Leasing:
    When you want to turn in a leased vehicle early, you may be responsible for contract termination charges.

    Buying:
    When you want to end you financing agreement, you need to make the pay off on the car. This will be everything you still owe on the car plus any finance charges.

    What if I want to get rid of the car?:

    Leasing:
    At the end of the lease, you can give back the car and pay any fees that may occur such as extra miles put on the car or wear and tear charges.

    Buying:
    Once you've bought a car, getting rid of it will be your chore to deal with. You can sell it or trade it in as a down on another car.

    What are my options at the end?:

    Leasing:
    When you are at the end of your lease agreement, you have a couple of options. You could turn the car in, trade it in, sell the car privately, or buy the car. When you turn in the car you are responsible for any added fees that may occur such as extra mileage or added dealer fees. Trading in the car would be the same as trading in a car you had bought. The dealer will tell you the value of the car as is and that value will either be more or less than the lease end buy out. If it is less or more, that amount will be applied to the next car you wish to buy. If you opted to sell the car, you would be responsible for paying the dealer the lease end value of the car. Your last option would be to buy the car from the dealer, which would mean that you would pay the lease end fees, and then take possession of the car.

    Buying:
    When you have completed the finance agreement for your new car, you can either sell it or trade it in on a new car. (See our section on selling your used car.)

    When trying to decide if you should lease or buy a car, consider the following things.

    If you think you would like to:
    Paint the car
    Customize the car
    Install a stereo
    Keep your car forever
    Get a different car shortly
    Drive large distances (road trips)
    then leasing may not be the best option for you.

    When leasing, like buying, you have the option to lease new or used car but leasing used car sometimes means having to purchase a warranty because the warranty on that car may have expired. These cars may also have baggage that you don't want. There could be things wrong with the car and having to purchase a warranty might put you into that higher monthly payment anyways so you might as well opt for the new car lease.

    Every persons situation is different when buying a car so it's hard to say what will fit your needs. For some leasing might be the best option while others may be car buyers.

    If you decide leasing is the best for you and have questions or concerns, read our Leasing How to section before you make any decisions. It has a glossary of tricky leasing terms that might help you make a better deal for yourself.

    If buying a car is what you want to do, we have a Used car buying and New car buying tip section that will help you make the best choice.