Is it Better for Me to Lease or Buy?
There are advantages to leasing that you can't get with
buying. The most prominent of these is that your monthly payment is less
than it would be if you were buying. So, if you have expensive tastes,
but don't want to pay expensive prices, leasing might be the right
choice.
The flip side of this is that at some point, you will have
to return the vehicle. But if you decide to buy, you could end up
having to pay a lot more than had you just bought it from the beginning.
Also, constantly leasing vehicles means that you will never reach a
point when you won't have to make car payments.
Breaking Down Lease Terms
There's a lot of jargon surrounding the world of leasing, so let's break it down in simple terms.
- Lessee: That's you; the person leasing the vehicle.
- Lessor: That's them; the company leasing you the vehicle.
- Capitalized Cost: The total adjusted
amount the vehicle is financed for; negotiated down from its initial
value.
- Residual Value: The value of the car at the end of the lease.
- Money Factor: The interest rate you will be paying.
- Acquisition Fee: Additional cost paid at signing; goes directly to leasing company.
- Disposition Fee: A fee that covers
cleaning and re-selling expenses at the lease's end if you don't buy the
vehicle.
So I've Decided to Lease a Car, Now What?
Awesome! No long-term commitments and lower monthly
payments are yours. Now let's break down the finer details.
Maintenance and Repairs
Driving a leased car means that you are driving a new
vehicle under a manufacturer's warranty. These warranties are in place
to cover defects and minor issues that arise that aren't your fault.
However, things like tire replacements, belts, hoses, and
window repairs are your responsibility. It's important to think about
repair costs in a way like you are the owner of the car. This keeps
drivers accountable and from returning a trashed vehicle at the end of
the lease.
Leasing and How It Affects Your Credit
When you lease a vehicle, less debt will appear on your
credit report since you are not responsible for the full value of the
car, only the value that you are using. What would show on your report
would be the residual value of the car as pending.
If you don't keep the car at the end of the lease, the
pending value will no longer show on your report, and you'll instead
show that you successfully completed a lease. Since leases are typically
shorter than financing a car, successive lease completions can boost
your credit score quicker than buying a car.
My Lease is Over, What Happens Now?
Returning the car is as easy as you want it to be. If you
stayed within the mileage parameters and the car only has typical wear
and tear, you can pretty much expect to drop off your keys, sign some
paperwork, and be on your way.
Otherwise, you'll find yourself hit with some stiff fees.
Excess mileage penalties usually fall in the range of 20 to 30 cents per
mile, which doesn't seem like much at first glance, but adds up
quickly.
You can also enter a new lease on a newer car. This jump
is made simple by you already being savvy to the process, so you can
better negotiate your next deal.
Then, there's the option of buying. The good thing about
this is that there's no haggling necessary. The residual value of the
car is what you owe, period. This can be either good or bad, depending
on how the car has depreciated in value during the time that you leased
it.
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