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Lease or Buy a Car

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Lease or Buy a Car

2010-11-20 by
What is a Car Lease? Should you lease a car or buy a car? This article helps you to understand about car leasing.

There are many advertisements about car lease deals on TV, radio and internet, and those prices are very attractive. Then we ask: if car lease price is so good, maybe we should lease our next car? But many suggest that Auto Leasing is the worse finance decision one could ever make. Is it really that bad? We shall take another look at comparing lease vs buy, so that you can be your own judge to decide to lease or buy a car.

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Lease vs Buy

They are two different "finance products" that aim for different target group, so if one says buying is better over leasing without knowing the situation of that car shopper, or vice versa, it should be considered as an uneducated comment. So let's take a look at the pros and cons of these two options.

Lease Buy
How it works? You pay for a depreciation charge and a finance charge for the lease term. The depreciation part of each monthly payment compensates the leasing company for the portion of the vehicle's value that is lost during your lease. The finance part is interest on the money the lease company has tied up in the car while you're driving it. Tax is calculated on your monthly payment (some states vary) You pay for a principal charge and a finance charge. The principal pays off the full vehicle purchase price minus down payment if any, while the finance charge is loan interest. Tax is calculated against the purchasing price of the vehicle.
Monthly Payment Considerably Lower Much higher
Down Payment Depends on your credit, possible to get zero down. However, putting a down payment could lower monthly payment, but we do not suggest that. From time to time, there are lease specials with low money factor. Unless you are paying cash, you will need to take a car loan. Depends on your credit, most of the time a down payment is required and it will lower monthly payment. Sometimes car makers may have finance specials i.e. 0.9 APR
Credit history You will need tier one credit score which is about 720 - 740 or above depending on the finance institute to qualify for the advertised lease deals. If you are taking a car loan, credit history is one of the factors to decide what APR you'll have. You can also have a co-signer. But if you have less then perfect credit score, be prepared to have a very high APR. It may be good idea to borrow money from family and pay them off every month.
Short Term Cost Saving Yes, you will pay a lower monthly payment until the end of the lease. But you need to commit to on time payment til the end of the lease otherwise it will damage your credit and penalty will be applied as it is considered breaking a lease. No, but you will safe money in a long run because there will be no more monthly payment after you pay off your vehicle. You will need to keep the same "old" car for a while to maximize cost saving. But if you have a car loan, late payment will also affect your credit negatively.
New Cars every 2-3 years? Yes, since most leases generally last 2-3 years, you will get to drive the latest model with a new lease. No, since you want to maximize your saving, you will wish to keep the same car for as long as it can be.
Major repair risks No, it is covered under the warranty during the period of "ownership". But lease owners are responsible to return the leased car in good condition at lease end. Otherwise, lease owners will have to pay for the excessive wear and tear, like dents and paint chips or the cost to repair the vehicle. Yes, you are on your own after the initial warranty expires. Cost of repair is always higher for older luxury cars, like BMW, Jaguar and Mercedes. Car owners can decide if dents or other minor cosmetic problems should be fixed as long as it is safe to operate on the streets under the law.
Ownership No, the leasing company owns the car for the leasing period. It also means you will drive a new car every 2-3 years if you decided to keep leasing your vehicle. Which also means you don't need to worry about going through all the hassels to sell your car. Yes, after you pay off the finance of the car. And you will keep the same car for a longer period time to maximize cost saving.
Mileage limitation Yes, usually 12,000 miles a year. There will be a penalty (varies from $0.20 to $0.40 / mile) over the limit. No, you can drive as much as you want. Keep in mind, the higher the mileage, the lower the resale value.
Resale value No need to worry about it. You will return the leased vehicle to the dealer when the lease is up. But the vehicle should be maintained in good condition otherwise penalty would be applied upon return. Yes, the older the vehicle, the lower the resale value. Usually the resale value of new vehicle drops rapidly in the first 3 years. Mileage and condition also pays a factor in the resale value.
Tax deductible for business use Yes, and it is more simple to deduct tax from car lease for legitimate business use. Yes, But it is advised to work with certified accountant because it could get complicated.
Auto Insurance policy Requires full coverage and a certain amount of liability. GAP insurance is highly suggested. Requires full coverage and a certain amount of liability for financed vehicle. If you paid cash, it's up to you how to insure your brand new vehicle.

So now you have read the pros and cons about both car leasing and buying. You should have a better idea to decide to lease or buy a car. If your answer is car leasing, find the best lease deals by comparing lease deals from local dealers on

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