Should I buy or lease a new car?

There are pros and cons to both leasing and buying a new car; much has to do with your present and future life style and financial circumstances.

• When you buy a car you own it; you can do as you please, modify it, and drive it as often as you like. You will retain the equity, but, beware, the average car depreciates approximately 50% in the first 3 years.
• Leasing has lower upfront costs and monthly payments than vehicle loans, however, there are mandatory maintenance and mileage limitation considerations.

Ask yourself the following questions:

• Do you own your own business? What is the intended use for business or pleasure? Do you want or need to drive a vehicle with a certain level of luxury?
• What amount of mileage do you typically put on a car a year?
• How is your credit?
• Do you have the money for down payment or to buy outright?
• Historically, how good are you at maintaining your vehicles?
• In the near future will you require a change in vehicle size or usage (truck vs car, sports vs family vehicle)?

Leasing

• enables you to save on monthly payments, typically 36 months.
• drive a car that you may not otherwise be able to afford.
• monthly lease payments are approximately 30%-50% less than loan payments for the same car. (You only pay for the vehicle’s predicted depreciated value, not the entire value).
• Tax benefits, business owners may find it easier to write off expenses vs purchasing.
• At the end of the lease you may have the option to purchase your vehicle for its depreciated value.

Purchasing with a loan

• your monthly payments are higher than leasing.
• pay for the entire cost of the vehicle, including the depreciated value, financing periods are usually longer than leases.
• At loan end, you own the title and car free and clear.
• or you can sell it at any time as long as you satisfy the loan.

Down payments

• Leasing. Usually none are required, there may be exceptions, such as in getting a better financing deal or due to personal credit rating issues.
• Buying with a loan. Up to 20% may be required.

Up-front costs

• Leasing: down payment (if any), first month’s payment, taxes, registration fees, and possibly a security deposit; typically, it is about 1 to 2 months’ payment. Customers with good credit often don’t have to leave a security deposit.
• Buying includes: down payment, taxes (based on total vehicle purchase price), and registration fees. No security deposit is required.
• Save $ on sales tax. In most states, for leased vehicles, sales tax is based on and paid with monthly payments, therefore the sales taxes are often less.

Maintenance/Mileage

• Leasing companies require maintenance on the vehicles and for them to be kept in good condition.
• Typical leases allow 10,000 to 15,000 miles per year, if you exceed the mileage limitation you will be charged extra; additional miles may be purchased up front.
• Buying, you can maintain it as you please.
• There are no excess mileage limitations.

Early termination/End of Term

• Leasing early termination charges can be expensive.
• At the end of the lease, you may have the choice of just returning the car, getting another lease or buying it per your lease contract.
• Buying early termination charges can also be expensive if the car has a high depreciation value, and/or you are upside down, particularly if you rolled another loan balance into your current loan, made little or no down payment, or have a long-term loan.
• At the end of the term, you own it free and clear.

For Your Consideration:

• If you decide on a long-term vehicle loan, consider paying it off early or holding onto the car until it is paid off, for maximum equity benefits.
• However, if low monthly payments, driving a new car every few years is what you are after and you don’t mind the mileage limitations and/or you don’t put a lot of wear and tear on your car, then leasing may be best option for you!
• Filing bankruptcy during the term of lease or after a car purchase*
  *Consult a knowledgeable bankruptcy attorney, learn how to handle property, and find out what your obligations are for existing contracts during bankruptcy proceedings.

Feldman Law Offices
610-530-9285
Feldman and Feldman, Attorneys at Law
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