Having a car is a major financial commitment that should not be taken lightly. If you are in the market for a new car, you will be faced with a choice of whether to lease or buy a car. Each option has its own perks and disadvantages, which you will want to consider based upon your unique situation. Approaching the process rationally and with a researched plan of action can help you make the best decision for you.
How to decide if you should lease or a purchase a car
Step 1: Consider your financial situation. You should begin by stepping back and objectively evaluating your financial state and what you can afford.
It is not prudent to decide on a car before you even think about if you can swing it financially. If you skip this step you might wind up with a car you can’t afford and have to pay for the decision for years to come.
Think seriously about how much you could afford to put into a car each month. Knowing this before you go into the process will not only make you a more disciplined consumer, but it also keeps you aware of your true needs.
Step 2: Get beyond the initial pricing. A major mental move you need to make is not limiting yourself to initial pricing information.
Maybe you saw a hot new ride available for lease at a super affordable price, and you are now instantly convinced. Maybe you saw a car you thought you could afford to own but at a price out of your budget, and you are now instantly discouraged.
What you probably don’t realize, however, is that these knee-jerk reactions may not be financially wise over the long term.
Step 3: Determine if you can afford to buy. If you can afford to pay more money per month for the length of your car loan, consider buying.
When you purchase a car, you are going to be paying more at first. This is because you are actually investing in the car itself. With a lease, you are simply renting; you pay less per month, sure, but you end up not seeing any of that money on the other end.
If you lease continually, you pay more overall. With a purchase, you might pay twice as much as a lease for 36 months, but at the end of those 36 months, you’d have no more payments.
If you drive well and keep up your car’s maintenance, it’s conceivable that you could have the car for 10 years and are not paying anything at all on your car for seven years. You pay more than a lease for the period of time it takes you to pay off the loan, but you save in the long run.
A final consideration concerns car insurance rates. Since a lease is for a higher-priced car at the top of its game, car insurances premiums are higher. If you buy a car, the longer you own it the lower your rates become since the car is technically not as valuable.
Step 4: Determine if leasing fits your situation better. If you don’t have the extra money for a loan payment each month, leasing might fit you better.
It may be the case that you’d rather agree to pay less each month. Or, perhaps you’d rather not take the risk that you would pay off a car loan and then ruin the car.
You might enjoy the feeling of always having a new, cutting-edge vehicle. Finally, you may just prefer not to have all the hassles of car ownership.
Whether it’s financial or personal, leasing may be a better fit for you. As with many decisions in life, what is best depends on your situation, your needs, and your wants. Balancing these things effectively will result in the best decision for you.