Wednesday, January 30, 2008

Arming yourself: Buying or leasing?

At the present there are two ways for you to obtain a car outside of a shady newspaper advertisement with some residential address or a "for sale" sign in someone's passenger side window. You can either intend to buy the car outright either with cash or some sort of financing agreement or combination there of, or you always have the option to lease an automobile.

When you outright buy a brand new car you sign a great deal of paperwork and either fork over a certified check for the full amount of the car, or you provide a relatively small down payment and arrange for some sort of financing agreement with a major lender. Leasing is a whole other matter that has it's pros and cons. Is it right for your financial situation? And what is leasing, anyway?

When a car leaves the lot, it loses value. It may be a brand new car with a grand total of zero miles on the odometer. And even though it's essentially the same car a mile down the road, minus your butt imprints on the driver side seat, it's essentially used. It cannot be sold again as a new car. It undergoes something called depreciation. No matter what you do, no matter how well you take care of the car, you cannot reverse the process.

When you lease a car, you're not paying for the value of the car. Nor do you ever actually own the automobile outright. You're essentially paying the depreciation value plus a small interest charge so someone else can resell the car when you're done with it without incurring some sort of financial loss. When your lease is up, you turn in the car to the company you're leasing it from and shop for a brand new one to replace it.

Both buying (with and without financing) and leasing have definite advantages over one another, advantages that you should certainly take into consideration before arranging to replace your transportation. The over all monthly payments may be relatively small compared to the over all value, but a car is likely the second largest purchase after a home that most people will ever make in their financial life time. It can make or break most people, so it's important to figure our what decision is best for you.

Let's examine some of the advantages and disadvantages.

Buying Advantages:

  • When you're done with your monthly payments, that's it. You completely own the car. You no longer have to worry about paying it every month. And chances are the car still runs pretty well with all things considered.

  • Since you own the car outright you can either save the monthly payments, forward it to your other debts, or purchase another car should you somehow find the need. This is a great option when a teenager reaches legal driving age, you can provide them with the 5 year old family car that's been paid off while you find something a bit sportier. Since most kids can't concentrate too much on a job, they'll only have to worry about their insurance payments and maintenance.
Buying Disadvantages:
  • Lenders will occasionally rake you over the coals with really crummy interest rates and fees, especially if your credit is a little less than stellar.

  • While the car should still be in more or less in working order when your loan is completely paid off, it'll still need more effort to keep it running than a brand new one.

  • If you loan is paid off, it's likely that your warranty (both dealer and manufacturer) have expired. So if something goes wrong, it's almost always going to be out of your pocket.
Leasing Advantages:
  • You always have a brand new car at all times.

  • You have the freedom to switch it up at will. With leasing it's fairly easy to turn in your Mercury Sable for a BMW roadster, should you suddenly find yourself with the means to support such a drain on your checking account.

  • You'll typically pay less on the same car on your monthly payments to lease versus to own.

Leasing Disadvantages:
  • You'll never own the car.

  • The language, terms and conditions used in lease contracts differs significantly from company to company. You will have to be extra vigilant whenever you sign the dotted line.

  • You'll have to pay attention and make sure you don't violate those terms. Typically leasing a car involves mileage restrictions, accident penalties, and a whole load of really special, neat stuff.

  • You'll always have to pay something
Of course when your lease is up you'll have the option to purchase the car you've been using, should you find yourself in a situation wherein you've fallen in love with that beautiful Mustang. Sometimes the purchase price is half the sticker price, sometimes more and occasionally less. In the end, the two kind of even out and become mutually good decisions if gone into with the proper knowledge and know how.

Regardless, you should always examine your current situation and foreseeable future to see what's right for you. But there is always another option. You don't have to buy a car, and you don't have to lease. You can do either or a combination thereof, as always it is your decision.

1 comments:

Jay Lee said...

Please take time to read the licensing agreement which explain the conditions that must be met before you can use one of my pictures on your web site.

You can read it here:

http://creativecommons.org/licenses/by-nd/2.0/deed.en

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