The International AutoSource Blog

Whats the Best Decision for You: Buying or Leasing a Car?

When it comes to vehicle purchasing, it is difficult to decide whether to buy or lease a car in the U.S. Both buying and leasing has its advantages, but determining what the right resolution is for you presents some challenges. Taking into consideration your driving preferences, amount of travel and lifestyle will help establish what the right choice is and will provide insight on future vehicle purchasing decisions.

Standard law in the United States declares that any person operating a motor vehicle must have a valid in-state driver's license. Each state has different driving laws to abide by, so make sure you receive the correct information on what these rules entail. Along with having a valid driver's license, you are required to have auto insurance before you receive the title to a car. This ensures that you will receive financial coverage in case of an accident, theft or damage caused to the vehicle. You will have to pay taxes, tag fees and a down payment along with your insurance.

To buy a car means you will own the vehicle and get to keep it at the end of the term. When you first buy a car, up-front costs include the cash price or a down payment, taxes, registration and fees, and other charges.

While buying a car, a customer is expected to put down at least 20 percent of the vehicle cost towards a down payment. When a buyer puts down 20 percent at the time of purchase, he or she has effectively paid for the first year's depreciation up front. This means that the buyer is not "upside down" on his or her loan. Being upside down means owing more on the loan than the car is worth. If you plan on buying a vehicle, there are a few pros and cons you need to consider:

Pros:

• You can decide between a new or used vehicle and sell the car whenever you choose.
• The car is yours and you can use the car as security for a loan.
• You many put as many miles on the vehicle and invest as much or as little as you choose in maintenance and repair.

Cons:

• The mileage, condition and popularity of your car will determine its final value.
• If you don't make your car payments on time and in full, your lender can repossess the car and resell it.
• If the resale price of the car is lower than the amount you own on your loan, you could get stuck paying the difference.

When you lease a car, you do not own the vehicle. A leasing company usually owns the vehicle, and lets you "rent" it over a specified period. You get to use it but must return the car at the end of the lease unless you choose to buy it.

With a car lease you are paying monthly installments, which will reflect an interest rate as well as the depreciation of the value of the car you are leasing. If you plan on leasing a vehicle, there are some pros and cons to consider:

Pros:

• The vehicle will most likely be new because used- car leases are hard to find.
• When the lease ends, you can return the car, or buy it for a previously determined price (the residual value).
• Your monthly lease payments will be lower than monthly loan payments for a comparable car.
• You'll be able to lease a more expensive vehicle than you can buy because lease payments only have to cover a portion of the car's entire cost.

Cons:

• You'll probably encounter a penalty if you: break the lease early, exceed annual mileage limits, don't meet a specific maintenance schedule, or fail to make the required monthly lease payments on time.
• You won't be able to pledge it as security for a loan because you don't own the vehicle.
• You'll have to pay for any repairs needed at the end of the lease period to make the car re-sellable.

Overall, for short- term deals it is cheaper to lease a car because they have low monthly costs. Although you will always have a relatively new car if you continue to keep leasing new- model vehicles, it is always more expensive to lease a car long-term than to buy a similar car and keep it for the same length of time. No matter what you choose, you will always have to make your car payments on time. If you fail to make proper payments, your credit record will suffer and you may ultimately lose the car.

Whether leasing or purchasing, be sure to weigh the pros and cons in your decision- making process that best supports your financial situation and mobile lifestyle.