The Car Spot

Are you buying a car for yourself? To find a car of your choice is relatively easy compared to the financial process involved in purchasing a car. Finding the best deal possible, negotiating the price with the dealer, finding the lowest car insurance and so on can sometimes demoralize an enthusiastic car buyer. Apart from these financial processes, one of the most important financial decisions that a car buyer needs to make is whether to buy or lease a car. This article will help you in making the right decision, depending upon your financial preferences.

The Difference between Buying and Leasing a Car

Buying and leasing are two different ways to handle car financing. Both of these options have their pluses and minuses.

When you buy a car, you are paying the price for the entire vehicle; irrespective of the number of miles you drive it. In the case of leasing a car, you would only be paying for the portion of the car that you use up during the lease years. In both cases, you would be getting cheap car loans and paying monthly installments. The installments in case of leasing would be lower. Why is it so? Let us understand it better by taking an example. Suppose you buy a car worth $25,000; then your monthly payments would be calculated according to the total purchase value of a car including finance charges and other applicable fees. In contrast, when you lease the same car for a period of two years, then your monthly payments would be calculated on the basis of the depreciation value of the car. This means that if this car has a resale value of around $15,000 after two years then you would only have to pay for the $10,000 difference and finance charges and other applicable fees. This is the reason why leasing a car would have lower monthly payments than buying.

How to Make a Choice

It is quite natural that both financing methods, buying and leasing, have their own advantages and disadvantages. Therefore, it is the choice of the car buyer that matters the most. However, here are some guidelines compared to the cost of the vehicle that can help you make an informed decision.

• If you are going to use the car after the cheap car loans have been fully paid off, then the cost of buying is spread over a longer term. In the case of long-term comparison, buying a car is always cheaper than leasing it.
• The next case is if, after the term ends, whether it is a loan that ends in the case of buying or a lease that ends in the case of leasing, you are going to sell off or return the car, then this medium-term cost would be the same for both the options.
• If you only compare the short-term monthly cost of buying vs. leasing, then the monthly cost of leasing is much lower (25 to 50percent lower) compared to the monthly cost of buying.

Once you find a car of your choice, the decision of buying or leasing is entirely up to you. If you like to have a different car every two to three years and cannot afford higher monthly payments, leasing is best suited for you. If you do not mind paying higher monthly payments and like to own your car, then buying is best for you.