Think about how many choices you make each day based on personal preference: shorts versus pants, tennis shoes versus sandals, coffee versus tea. Decisions, Decisions, and more Decisions!
If only financial choices could be just as simple! One of the most common financial dilemmas people face is whether to buy or lease a car. While some would think the answer would depend on personal preference, there are a lot of pros and cons associated with both options. Below is a list of a few of the pros and cons to think about before moving forward with your decision.
Buying a Car:
Pros:
- No Mileage Limit – If you decide to drive across the country one day on a whim, you are free to do so. Buying a car allows you not to worry about incurring any fees for going over a certain mileage limit.
- Eventual Car Ownership – If you choose to finance your car purchase, eventually those payments will end, and the money you were spending can be allocated towards something else like saving or investing.
- Freedom to Sell/Trade at Any time – If you own the car, you are not tied to any contracts forcing you to keep it for a certain amount of time. Sell or trade it whenever you are ready.
- Ability to Customize Your Car – You want to add a custom paint job or tint your windows? Go for it! You own the car so you can do whatever you want with it.
Cons:
- Higher Monthly Payments – Purchasing a car usually means you’ll be paying higher payments every month and for a longer period.
- Long Term Maintenance Costs – We all know car maintenance can be unpredictable. Guess what happens once the car’s warranty is expired? All maintenance costs are out of pocket.
- Depreciates Over Time – Cars, unfortunately, lose value over time. In fact, if you buy brand new, they usually lose value as soon as you drive them off the lot! The resale price is unpredictable in the future.
Leasing a Car:
Pros:
- Ability to Drive the Latest Models – If driving the latest and greatest is high on your priority list; then leasing a car is a huge benefit. Your car will never get old before you get the next latest and greatest on four wheels!
- Lower Monthly Costs – Since you are not buying the car, the monthly costs tend to be lower depending on the type of car you lease. You may be able to afford to drive the car of your dreams, even if it is just for a few years.
- Usually Has Warranty Protection – Lease terms average 36 months and are protected by a warranty during the entire term. Save on repairs.
- Lower Upfront Costs – Leasing tends to require little to no down payment and avoids any sales tax! Lease payments are generally less expensive than financing payments on a new car. The average car lease payment is $460 per month.
Cons:
- Mileage Limit Restrictions – Most leases come with annual mileage restrictions (between 10-15,000 miles). Road trips will not be in your best interest in a leased vehicle. You may incur the additional costs of renting a vehicle should you get a wild idea to drive cross country to not surpass the mileage requirement on your leased car.
- Continuous Payments – Unless you decide to purchase the car at the end of the lease, you will return it and start leasing another new car. The monthly payments are never-ending and could put a damper on your savings.
- Potential for Excess Fees (Early Lease Termination, Excessive Wear and Tear) – Watch out for additional fees you could incur by not following the lease agreement!
Determining whether to buy or lease a car depends a lot on your personal financial situation and driving habits. Whichever option you choose, make sure that you do your research and can fit it into your budget!
As always, please reach out to your trusted advisor or accountant with any questions. Contact us for a complimentary consultation at daly.cynthia@canfinancial.biz or www.canfinancial.biz.