In life, there are a few purchase milestones we hope to reach within our career, one of the biggest ones being purchasing your first car. Therefore, it is imperative to consider all options and factors before deciding whether it is best for you to buy or lease a car as both options have several benefits and downsides. You need to evaluate your reasoning for purchasing the vehicle – your budget and your spending behaviour. You need to consider how much you plan to drive, how often you would like a new car and if you would like to customise your car. Both options are reasonable but only one is the right one for you and your finances. There are however a few things to consider before deciding whether you are going to lease or buy your car;
What Type of Car Works for You?
What are you looking to get out of your car? Is its sole purpose to get you to and from work? Are you looking for a car with lots of space, so you can grow your family? Will you use it for long distance trips? The type of car you choose will have a significant impact on how much it will cost you to both leases or buy the car so it’s essential to have narrowed down your list to cars that meet both your financial means as well as your lifestyle ones.
Evaluate Your Budget
You need to evaluate your income and expenses to figure out what you really can afford.
Check Your Credit Report
Most creditors will use your credit score to help determine the terms of your contract. Knowing your credit score can empower you to make changes or correct errors before applying for a loan.
Access Your Savings
Consider how much you would like to save for a down payment. The larger the down payment, the less you owe and the less interest you must pay.
Research Loan Options
Should you try to get a preapproved loan from the bank you could use it as a bargaining tool when talking to a dealer. Consider and compare all terms; monthly repayments, length and loan interest.
Consider the additional cost that comes with both leasing a car as well as buying one – additional costs such as insurance and registration cost and try to incorporate them into your savings plan.
Buying or leasing a car is a big decision. It’s also no small chunk of change, so you want to ensure you are making the best decision for you and your finances. Each option is beneficial in their own right – it depends solely on what will work best for you. Take a look below at the benefits of both leasing a car and buying a car.
Benefits to Buy
Your Own Asset
If it is you who are financing your car and not your mother or father, it might take you a few years to build up any equity (where you owe less than the value of the car) but after time you will own your very own asset that can be used by you as you wish – an asset that can be sold or traded in at your discretion. Having an asset is important as it gives you a feeling of security as well as increases your net worth.
Your Payments End when Your Loan Ends
When you buy a car (if you’re not paying for it in cash) you may have to take out a loan. Which you over time will gradually pay off and own completely. Free and clear and fair. When you reach this point you’ll no longer have monthly car repayments freeing up some extra money. If you lease, no matter how much time has passed you will always have monthly car payments.
No Mileage Restriction
When you lease a car you’re generally limited to a certain mileage restriction ranging anywhere between 10,000 – 15,000 miles per year before you will start accumulating penalties. However, if you own the car and are in the process of paying it off you can drive it as much as you like without being fearful of crossing that penalty fine line.
No Charges for Excessive Wear
When you lease a car, you are generally held accountable for anything that could be considered beyond the normal ‘wear and tear’ of the car. If you get a dent in a car of your own, you can choose how and when you wish to fix it – or to not fix the dent or scratch and save the money.
You cannot customize leased vehicles. Leased vehicles need to be returned to their original state, so any modifications made will need to be removed. This is often, depending on the modification impossible to remove and very expensive.
Benefits to Lease
A New Car Every Two Years
After your lease period is up, you can return the car – swapping it out for another one along with a brand-new lease package.
Little or No Maintenance
Leased cars are under factory warranties that, for the most part, continue throughout the term of the lease agreement. Leasing is a great way at putting to ease any fear of paying uncertain and costly repairs.
Cheap Monthly Payments
While it depends on a variety of factors such as; model, make and down payment, generally speaking, you can lease a car for less than it cost to buy it. When you lease a car, you are only paying for the depreciation and associated charges of the car not for the residual value of the vehicle.