The land of opportunities once again rises to the occasion, this time offering you two completely different car purchase options. Leasing and buying. What will it be? Read further to examine what the best purchase scenario is for you.

Leasing:

Once thought to be a complicated process more oriented towards business owners who needed to acquire cars for their job needs, leasing nowadays has become very popular among consumers. In fact, it is gaining more momentum as car prices are rising, and fixing hi-tech luxury vehicles are becoming more costly.

The benefits of leasing:

The number one benefit of leasing a car is the low out of pocket expenses to acquire and maintain your new car. Typically there are no or very low down payments and your monthly payments remain relatively low too. Additionally, the term of your lease is shorter than a term of a purchase, usually anywhere between 24 to 36 months, which means you can find yourself driving a new set of wheels every two to three years.

If you’re passionate about the latest technology, design and engineering which keeps changing every few years, then a lease is for you.

On the financial front, many customers find it difficult to acquire car loans over $30,000 because banks are hesitant to lend that type of money for vehicle ownership. This makes leasing your only other option especially when you’re in the market for a top of the line model.

Lastly, rest assured that the manufacturer’s warranty covers the entire period of your lease. So any defects or engineering malfunctions are free of charge.

The downside of leasing:

Leasing is like renting a car. You never really own the car and if you like the feeling of owning something, perhaps financing is your cup of tea.

Perhaps the biggest drawback in leasing is the mileage and wear and tear restrictions. Usually leases come with a 10,000 mile per year restriction. You can always negotiate with the dealer and increase it to 12,000 and even 15,000 mile per year. Your monthly payments will increase respectively. If you like taking long road trips or drive to work every day, you may end up surpassing the mileage limit at the end of your lease, during which you will be charged anywhere from 10 cents to 25 cents per mile. If for example you drove 6,000 miles beyond your limit, you could owe anywhere from $600 to $1,500 at the end of your lease term.

Additionally, any wear and tear to the interior and exterior of the vehicle, even things like stains, worn out mats, a cracked windshield or bald tires can cost you if you decide to turn in the vehicle at lease-end.

Lastly, insurance carriers require drivers obtain higher coverage premiums for leased cars, but that evens out if you don’t drive your car much (see insurance article in the June issue).

Buying a car:

Unless you have a suitcase full of cash to buy your new set of wheels, customers in the U.S. purchase cars by getting a loan. You either get a loan from the manufacturer credit company, which is the simple way to process it because it can be done at the dealership, or you shop around for loans from your bank or other lenders. Because the industry has become so competitive, vehicle credit companies nowadays offer very competitive loans. I have personally shopped around for a loan during my previous car purchase and no other lender came even close to the interest rate offered by the manufacturer’s credit company.

The benefits of buying:

The key benefit of buying a car is that you may actually own it one day, or already do own it if you paid the full amount at time of purchase. You can keep owning it, sell it, trade it in, or do anything your mind fancies, as long as it’s legal.

Additionally, you have no mileage limitations, no wear and tear restrictions and your insurance premiums are relatively lower than when you lease a car.

The downside of buying:

The downside that stands out the most is your monthly payments. They tend to be higher than lease payments and the dealer requires some type of down payment when signing the dotted line.

If you offer a moderate down payment, you will end up financing a larger portion of your vehicle. Additionally, in the first few years of your financing, a larger chunk of your monthly payments goes against the interest and not against the principal. And if the auto market trends end up depreciating the value of your particular make and model, a very nasty thing happens. A few years after your purchase, you find yourself paying more to own the car than what the vehicle is actually worth. For example, if you financed $17,000 to own your car over a course of 5 years, your car may depreciate anywhere from 15%-25% after 5 years. At that point, if you decide to sell it or trade it in, you may only get approximately $13,000 for it.

However you end up funding your next vehicle, make sure you read the fine print and all disclaimers on those weekend newspaper ads. Dealers want to get you in the door and advertise wild lease and finance offers with captivating headlines that make you wonder if it is too good to be true. Sometimes it is. Ask many questions and you could save some extra cash that you will need to pay your tolls on your next road trip.

Drive carefully and we’ll see you on the road.