Should I Buy or Lease a Car?

A new car is usually the second biggest purchase most of us make, and the biggest for some of us. Since many shoppers have to finance their new vehicle, deciding whether to buy or lease it can be confusing, especially for first-time buyers in South Jersey. There are many different factors to consider before you decide whether buying or leasing is better for you, your budget, and your lifestyle. Here are some of the pros and cons of each.

Benefits of Leasing a Car

By leasing a new vehicle, many shoppers are able to get more car for less money. The car’s monthly payments are typically lower because you’re only paying for use of the vehicle during the term of the lease, and not the actual sales price. For example, on a $30,000 car, you’d finance the entire $30,000 purchase price with a car loan. With a car lease, you only pay a percentage of that. The car’s predicted future value is what it is expected to be worth at the end of the lease, which is its residual value. The residual value is subtracted from the purchase price and what’s left over is what you make payments on. So if the car’s residual value is 55 percent after three years, for example, that means the $30,000 car would be worth $16,500 at the end of the lease. You’d make lease payments on the remaining $13,500 and not the full $30,000, plus interest, taxes and fees.

If you have little to no money to put down, leasing may also be better for you. Many leases require anywhere from $0 to several thousand dollars up front, though the down payment is negotiable. Most advertised lease offers will promote low payments, but require a sizeable down payment, and do not include tax & tags. Tax & tags vary from region to region and must be excluded in advertisements. If you want to put as little down as possible, remember that your monthly lease payments will be higher.

Many leases last about three years, which is typically the length of many new-car bumper-to-bumper warranties. As a result, the car is usually covered under warranty for repairs for the duration of the lease. You still need to maintain the car, though, which includes oil changes, tire rotations and recommended maintenance from the manufacturer. Failure to properly maintain the car during the lease can result in fees when you turn the car in at the end of the lease.

If you enjoy having the newest high-tech features, leasing could be better for you. Since you’d be leasing every few years, each new car you lease will have the latest and greatest technology and safety features. Sometimes you can even get out of your current lease early by using your leased vehicle as a trade in on a new car. If you’ve fallen in love with your leased car and want to keep it, you can generally buy it at the end of the lease by paying cash or by taking out a car loan to finance the balance. Be sure when leasing that you look for the best lease deals in Southern NJ.

Drawbacks of Leasing a Car

Automotive lease contracts limit the number of miles you can drive. You need to estimate how many miles you drive per year so you can determine how many miles to purchase. If you go over that amount, you’ll pay a fee per mile at the end of the lease when you turn the car in. These overage charges can be very expensive so be sure to Contact NJ Car Dealers and consult with a leasing professional.

With leasing, you can sometimes make minor alterations to the vehicle that can be reversed before you turn the car back in, but you generally can’t make any major alterations. Make sure you read the lease contract carefully before signing. 

Another potential downside to leasing is that usually only shoppers with good credit scores will qualify for a car lease. If your credit score is less than perfect, you may want to consider buying a new economy car or waiting to lease until you can clean your credit up and increase your credit score.

Benefits of Buying a Car

If you want to keep your vehicle as long as possible or you drive more than 15,000 miles a year, buying is probably better for you. When you buy, you own the car when the loan is paid off. Until the loan is paid off, the lender owns the vehicle. As you continue to make loan payments, you’re gaining equity in the vehicle.

Another benefit to buying a car is that on most loans you can make additional principle payments on your loan and reduce the interest you pay over the life of the loan, without penalty. When leasing the amount you pay for the lease is pre-determined and does not change even with early or additional payments.

One of the biggest benefits that buying has over leasing is that there are no mileage restrictions. If you have a long commute or do a lot of driving in general, buying is most likely better for you. If you plan on buying a car, be sure to look for New & Pre-Owned Vehicle Specials in South Jersey.

Drawbacks of Buying a Car

When you buy a new car, you roll the dice a bit with its resale value. It’s hard to determine what the vehicle will be worth when you’re ready to trade it in or sell it. With leasing, that future value is predicted up front and put in writing on the contract. If you look at the car’s residual value, which is used to calculate a lease, this will help you determine what it will be worth after a few years if you plan on buying. Sometimes, a buyer will owe more on the car loan than the car is currently worth, which is known as being upside-down on the loan. This is only a drawback if you plan on selling it or trading it in. This makes it more difficult to get rid of the car because you’ll have to come up with the extra money sometimes just to sell it.

Another potential drawback of buying is a sizeable down payment. Many lenders require about 10 to 20 percent down when taking out a car loan. On a $30,000 vehicle, this is $3,000 to $6,000. This can vary based on many factors, though, including your credit score, income, level of debt and more. If you’re not able to save up a sizeable down payment, consider waiting to buy, buying a cheaper car, buying a used car or leasing a new car.

One other downside of buying is that for some people’s budgets, lower monthly payments are a must-have. To get the monthly payments down to a smaller amount, lenders can stretch the car loan out longer. Auto loans can last five, six or even seven years. Remember that you’ll typically pay more in interest the longer you pay on the loan, so if you can pay it off early or take out a shorter three- or four-year loan, you might be able to save some money. A larger down payment will also help lower your monthly payments when you finance.

Make sure you sit down with a calculator and consider your budget, driving needs, lifestyle, and credit history before you decide whether to buy or lease. There are auto lenders who can provide you with financing that works best for you, whether you decide to buy or lease your next vehicle.