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Lease Versus Buy


Leasing allows a person to get a new car every few years. It can keep their payments relatively stable when leasing the same make and model of car over various leases. Leasing also frees the lessee from having to dispose of the car at the end of the lease term.




lease versus buy


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Dollar for dollar, this typically nets a driver a higher-end vehicle than they could get for the same amount if they were financing the entire cost of the vehicle. When the lease is over, drivers can buy the vehicle for the agreed upon residual value or it will be sold, which recoups the rest of the price for the lessor.


The downside to leasing is that you get no equity in the car. When the lease is over, you have the option to buy, which due to current market circumstances is attractive but may not always be. Also, picking up a lease every couple of years results in an endless cycle of payments that will certainly cost more than purchasing a vehicle and keeping it for a decade or more. There are also limitations on what you can do with your vehicle.


Leased vehicles often include routine service in the terms of the agreement, which can save buyers hundreds of dollars in oil changes and upkeep. But finance companies typically limit the mileage of leased vehicles to preserve the value of their vehicle and keep costs low.


While most new vehicles include bumper-to-bumper warranties long enough to last through most leases, lessees are still responsible for routine maintenance. Some brands (but not all) also include a few years of routine maintenance in new-vehicle purchases, and that extends to lessees.


This is an especially significant risk in 2022, as many new and used vehicles are selling far above historical values or MSRPs. The resale value of those vehicles may not hold up as well if inventories and prices fall back to historical norms in 2024 or later. While a dealer may mark up a $20,000 Nissan Versa to $32,000 because of inventory shortages, in five years that same Versa is likely to be worth a fraction of the original MSRP. What goes up will eventually come back down, and when faced with a markup that massive, a lease is a better call.


Automotive and lending sites, including our sister site Forbes Advisor, offer lease payment and loan calculators to help plan as accurately as possible. It also never hurts to speak to a financial advisor at your bank or credit union about your options before heading into the potential high-pressure environment of the dealership.


However, you indicated that you typically drive your vehicle for only 2 to 3 years. If you plan to change vehicles frequently, you may want to consider leasing as well. Read about our finance and lease programs to learn more.


However, you indicated that you usually trade in your current vehicle for a new vehicle. For the freedom to change or upgrade your vehicle every few years, you may want to consider leasing. Read about our finance and lease programs to learn more.


However, you indicated that you typically drive your vehicle for six or more years. If you'd like the option of keeping your vehicle long-term, you may want to consider financing. Read about our finance and lease programs to learn more.


However, you indicated that you typically drive 18,000 or more miles each year. For the freedom to drive unlimited miles without extra charges, you may want to consider financing. Read about our finance and lease programs to learn more.


However, you indicated that you usually keep your vehicle once it has been paid in full. If you'd like to own the vehicle you drive, you may want to consider financing. Read about our finance and lease programs to learn more.


However, you indicated that you like to customize your vehicle. For the freedom to modify your vehicle as you please, you may want to consider financing. Read about our finance and lease programs to learn more.


Determining whether you should lease or buy a car depends on a careful assessment of your finances and driving habits. Think about how much you can comfortably afford to pay upfront each month and consider how many miles you spend on the road to figure out the most cost-effective way to hit the highway.


If you decide to return your vehicle, you may be charged a lease-end disposition fee, and for any excessive mileage or wear-and-tear, the details of which are spelled out in your lease contract. Purchasing your vehicle avoids these fees.


Most car leases have automatic built-in GAP coverage, while car purchase loans do not. GAP coverage, or GAP insurance, pays the difference between what you owe on your loan or lease, and what your vehicle is actually worth if your vehicle is stolen or destroyed in an accident.


Most existing car leases were taken out months ago when car manufacturers were offering incredible money-losing lease deals and very low monthly payments. Many people who took those great lease deals now need to get out after losing a job or suffering other financial distress. Most lease companies allow those leases to be transferred to someone else by simply paying a small transfer fee.


Should you lease or buy your next car? Leasing costs less on a monthly basis and puts limits on how you can use your car. Buying comes with ownership responsibility but will cost you less in the long run.


Are you someone who wants a new car every few years? Do you need a swanky car to impress business clients? A lease could be more appealing for you. (And a car leased for business might just get you a sweet tax deduction as well.)*


GAP insurance protects the leasing company as your leased car depreciates in value. If your car is totaled, the GAP coverage will pay the difference between what the car is worth and how much you still owe on your lease.


The decision on whether to lease vs. buy a car can be complicated. With both options having pros and cons, it can be hard to figure out whether leasing or buying is best for your needs and financial situation.


Leasing a car is essentially renting it long term. You make monthly payments to drive the car for a specified period of time and number of miles. Most often, lease contracts are financed through a car dealership and last for a period of three to four years.


Elizabeth Ebinger in Maplewood, N.J., bought her solar panels, while neighbor Tim Roebuck signed a 20-year lease. Both are happy with the approach they took, and both are saving money on energy bills. Jeff Brady/NPR hide caption


Roebuck pays $69.25 per month, he says, which essentially replaces his monthly electricity bill. He says the lease payment will go up, but he's betting his power bill would have gone up even more had he not leased the panels. So he expects to save money too, though not as much as his neighbor. The benefit is that he doesn't have to figure all the incentives and subsidies that Ebinger enjoys calculating.


Beyond that, Roebuck says if paying up-front for solar were the only option, he probably wouldn't do it. And with his lease, if he wants to buy the panels in the future, he can at a discounted price. "It was a very simple, easy thing for me to do," he says. "It was a low-risk thing, because I didn't have to pay anything."


Ebinger and Roebuck each believe the path to solar panels they chose was best for them. John Farrell with the Institute for Local Self-Reliance in Minneapolis has studied the issue of leasing versus owning solar panels. His group has a calculator on its website to help consumers figure out the cost of both options.


He points to a resident of Chicago, for example. "You could save, over the 30-year life of a solar panel, about $6,200 were you to own that system outright," he says. Someone who leases panels would save about $4,000 off the cost of getting power from the local utility during that period.


Should your business lease or buy equipment? The answer depends on your situation. Leasing equipment can be a good option for business owners who have limited capital or who need equipment that must be upgraded every few years, while purchasing equipment can be a better option for established businesses or for equipment that has a long usable life.


Less initial expense. The primary advantage of leasing business equipment is that it allows you to acquire assets with minimal initial expenditures. Because equipment leases rarely require a down payment, you can obtain the goods you need without significantly affecting your cash flow.


Easier to upgrade equipment. Leasing allows businesses to address the problem of obsolescence. If you use your lease to obtain items that may be outdated in a short period of time, such as computers or other high-tech equipment, a lease passes the burden of obsolescence onto the lessor. You are free to lease new, higher-end equipment after your lease expires.


Higher overall cost. Leasing an item is almost always more expensive than purchasing it. For example, a 3-year lease on a computer worth $4,000, at a standard rate of $40/month per $1,000, will cost you a total of $5,760. If you had bought it outright, you would have paid only $4,000.


Obligation to pay for entire lease term. You are obligated to make payments for the entire lease period even if you stop using the equipment. Some leases give you the option to cancel the lease if your business changes direction and the equipment you leased is no longer necessary, but large early termination fees always apply.


When deciding whether to buy or lease a particular piece of business equipment, try to figure out the approximate net cost of that asset. Be sure to factor in tax breaks and resale value when making this calculation. After determining which option is more cost-effective, consider other intangibles such as the possibility that the product will become obsolete (if you are considering purchasing) or that your need for the product will expire before the lease does (if you are considering leasing).


But, you also indicated that you typically drive your vehicle for only 2 to 3 years. If you plan to change vehicles frequently, leasing can be a great choice. Read about our finance and lease programs to learn more and help with your decision. 041b061a72


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