Buy vs. Lease - What To Do When Getting A New Car

When in the market for a new car, most people must first decide whether they will buy or lease. No one wants to pay more than they have to, and many people will come up with their own system to determine which purchase methodology is better. From a mathematical standpoint (factoring in depreciation, inflation, etc.) there is always going to be a logical ‘right’ choice, although that choice is different for everyone.

First off, one needs to understand that from a financial perspective, leasing and buying are two fundamentally different ways of looking at value versus time. Let’s start with leasing.

Leasing is a type of purchase where you pay an upfront cost (the down payment), then continue to make monthly payments on your vehicle for an agreed amount of time, usually 3 or 5 years. Leasing is more like renting in that you don’t build any equity in the vehicle since you have to return it upon termination of the lease. This type of arrangement has a very low cost upfront, but a very high cost over time so the ideal period of ownership is a short timeframe.

Buying is the exact opposite of leasing. When you purchase a vehicle, you pay a large upfront fee (either by purchasing outright or paying finance charges on a loan) with the hope that your car will still be worth something (anything, as long as it’s more than $0) once you make your last payment. This type of arrangement is expensive and costly upfront, but becomes cheaper and cheaper over time so the ideal period of ownership for this is a long timeframe.

Additionally, there are details here and there that also affect the equation. For example, are you someone that can acceptably work with complications and maintenance down the line, or someone that does not ever want to deal with car problems? But, generally speaking leasing is much better suited to those that don’t plan on keeping the car for more than 5 years and purchasing is more fitting to those that want to keep the vehicle for as long as possible. For those people that plan on keeping the vehicle anywhere from 5-8 years, the cost of leasing and purchasing will probably be about the same amount.

So, what’s your answer for buy vs lease? I hope this article has helped you figure it out!

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