Buy or Lease a Car; The Decision is Personal
Have you been considering leasing a car? The pitches are compelling. There have been advertisements for leases under $150 per month. Sounds like a great deal doesn’t it? Not so fast, there’s more to leasing a car than meets the eye. The January/February 2013 issue of Money Magazine highlights “5 Things to Know About Car Leases”. Learn about leasing before you are hypnotized by the low lease monthly payments.
What is the Cost of a Lease?
The cost is easy to figure out; calculate what the vehicle is worth now and compare it with what it will be worth when you return it, called the residual value. Add in interest and fees and you have an estimate of the cost.
If the car holds its value well, the lease costs less.
Since the market for used cars is lean, you can lease a car today for less than the payment on a slightly used car.
Negotiate the Lease for a Better Deal
Almost everything is negotiable! Most of you realize that the purchase price on a car is negotiable. Well, guess what, so is the cost of the lease. Do not hesitate to ask for a lower sticker price (or capitalized cost). Attempt to negotiate at any point. If the dealer won’t budge, shop a competitor.
When comparing leases, read the fine print and be certain to compare apples to apples.
Short Term Leases are Usually Better
Dealers are more apt to strike a deal on a shorter lease. They want you to return, so they will offer a better deal. Additionally, once you pass the three year marker, some warranties expire and you may be liable for repairs. Although, my experience with most of our recent cars is that the cars are usually well made and are more reliable than in the past.
Read the Fine Print and Don’t Surpass the Mileage Cap
Leases cap your annual driving mileage at 10,000 to 12,000 annually. That’s usually enough for most, but if you know you will drive more, you may owe as much as 20 cents per mile. If you know you will surpass the limit, pay a bit more per month for a higher mileage cap.
Find out if you need gap insurance. Gap insurance kicks in when the insured value of the vehicle is less than the amount owed to the leasing company in the case of a total loss. Dealers usually throw it in, but banks may not.
Know what your lease entails and understand the total cost, both now and when you turn in the car. That will help you decide whether to lease or buy.
What if You Want to Get Out of the Lease?
If the car maker allows, you can find a new lease owner at various online sites, such as leasetrader.com or swapalease.com. If you can’t get out of the lease you may be able to buy your car at its residual value and resell it for a profit. The used car market is competitive today with prices for used models holding firm in the improving economy.
Know Your Own Values
Some people really appreciate driving a new car and are more concerned with the age of the vehicle than the total cost. For example, in one of this sites most popular articles, How Trading in a Car Every 2 Years Makes Good Financial Sense, this guy really liked driving a new car. He was happy to sacrifice in other areas of his life in order to own a new car. He didn’t travel much and his condominium was paid off. So paying up for a new car every few years was worth it for him. There is always a personal component to consider when making a financial decision. Ask yourself, what is important to you (not the media or your neighbors).
It is usually more financially savvy to buy a late model used car and hold it for the long term. That said, there are no right or wrong answers in personal finance.
I am not a “car person” and prefer to spend on other things. I bought my car new in 1998 for cash and still enjoy driving it, even though it sports a well-traveled 119,000 miles. It doesn’t matter to me what people think of my car. Yet, I prioritize spending a lot on travel and home décor.
Whether you lease a car or not, is a personal decision. Know the facts and the total cost before you make the decision. There’s no right answer to this one, but you will be happier and wealthier if you spend money on things that give you pleasure.
Which do you prefer, buying or leasing? If you buy, do you prefer new or used?
image credit; google images_ ny times