When the time comes to shop for a new vehicle, you will have a fair share of options to consider each step of the way. Aside from the fancy features and safety ratings, it is ultimately about getting the most for your money. If you’re evaluating whether buying or leasing is right for you and your budget, here are some questions to keep in mind.
Will I pay more to buy or lease?
When leasing a vehicle, you may be able to take advantage of a lower down payment requirement, potentially even zero down at signing. A lease may also help you score lower monthly payments. But at the end of the lease you will not be the owner of the vehicle unless you choose to buy out the lease altogether, which means more money out-of-pocket and potentially a loan to cover the difference. Remember that aside from monthly payments, you will be required to pay for vehicle insurance. Some lease agreements may even require GAP or Guaranteed Asset Protection insurance. However, depending on your agreement, maintenance may be covered for the duration of the lease term and the vehicle may be under warranty for the lease term which can give you added peace of mind.
In the short-term, buying a vehicle may cost more than leasing; however the vehicle will be yours once it is completely paid off. You’ll have a range of financing options to explore featuring rates that will vary based on your credit score, the model year of the vehicle, and the term of the loan. Down payments are typically required at signing, so you will need to plan to save up for that up-front expense. In addition to monthly loan payments, you will be responsible for insurance, routine maintenance, and necessary repairs. The vehicle’s warranty may cover some repair costs for a period of time, but the financial responsibility will be completely yours once the warranty expires.
What are the restrictions?
Leasing is essentially borrowing a vehicle for a set term. Because you’re not its rightful owner, there are restrictions set in place to protect the lessor. Most notably, there will be a set mileage limit, and surpassing this limit can mean big fees. Some leases may even require special permission before a vehicle can be driven out of the country. And if you intend to use the vehicle for Uber or Lyft services, you will want to verify that this is permitted first. Always review the lease agreement closely to ensure its restrictions will not cause any major inconveniences once you’re locked in.
On the other hand, when you’re the owner of the vehicle, it’s yours to drive where you want, how you want, and when you want – as long as loan payments are paid in full and on time, of course.
What happens when I’m ready to upgrade again?
When a lease ends, you may be able to simply drive the vehicle back to the lot, hand in the keys, and go about your day. You will be responsible for any applicable fees for exceeding mileage limitations, damage, or excessive wear-and-tear, but then you are able to take your pick of a new vehicle to lease. If you’re a fan of driving the latest and greatest models, leasing may be the most affordable way to take advantage of luxuries, like high-tech features or top-notch fuel economy, and upgrade your vehicle more frequently.
When you’re the owner of a vehicle and ready to upgrade, its trade-in value can provide you with cash for your next down payment. You’ll also have the option to sell the vehicle privately to get top-dollar for it. Kelly Blue Book can help you estimate its value based on the make, model, age, and condition.
Whether you choose to buy or lease, sticking to a realistic price point will help you manage the expense of a new vehicle. Always evaluate your budget carefully before visiting a dealership so that you know exactly how much you can comfortably afford to pay out-of-pocket on the spot and monthly moving forward.