Ah, there’s nothing quite like that new-car smell? It’s so popular, you can even buy it in a can. To me, I’m not sure that’s worth it unless I get an actual new car along with it. That said, given the costs, when it does come time to replace your classic clunker with a shiny (and fragrant) new edition, you may be wondering if it makes more sense to buy or lease.
Actually, you have three basic options:
- Purchase it outright, with no financing
- Purchase it with financing
- Lease it
Similar to Sheri’s past post about whether to rent or purchase your new home, your personal tastes and financial circumstances should share the driver’s seat when choosing which option makes the most sense for you. Here’s an overview of key considerations:
|Ownership||You immediately own the car. When you sell it or trade it in, you’ll own its entire, depreciated value, with less “red tape” involved.|
|Repairs/Maintenance||It’s your car, so repairs and maintenance are up to and on you.|
|Payments||There are no monthly payments, so no worries about what might happen if your financial circumstances change and ongoing payments became a burden.|
|Cost of Capital||The money you pay up front is now tied up in the car, unavailable for other purposes. But your future income stream can all be used for saving, investing or spending instead of for car payments.|
|Mileage Management||No worries here. Drive it all you want.|
Purchasing with Financing
|Ownership||You’ll still own the car in a few years with a future, depreciated value to sell or trade in for a new car.|
|Repairs/Maintenance||Same as if you bought the car outright, repairs and maintenance will be at your discretion and on your dime.|
|Payments||You can control your monthly payments by negotiating the terms and the down payment you wish to make.|
|Cost of Capital||If interest rates are low, it may be worth keeping your capital invested in the market (where it can earn market rates of return), instead of sinking it upfront into a car that loses value over time.|
|Mileage Management||Again, no need to manage your mileage.|
|Ownership||You’ll typically have the option to buy the car at the end of the lease … but you don’t have to. If you do buy it, the vehicle’s depreciated value becomes yours. If you don’t, ownership reverts to the dealer.|
|Repairs/Maintenance||Depending on the agreement (read it carefully!), you may be responsible for minor maintenance but you’re usually off the hook on major repairs, which are covered by a manufacturer’s warranty.|
|Payments||Monthly payments are usually lower than purchasing with financing because you are only paying for the vehicle’s depreciation – not the full value of the car at the date of purchase.|
|Cost of Capital||Similar to purchasing with financing, a lease can free up-front capital for other purposes, such as investing it at market rates.|
|Mileage Management||Most leases require that you remain under certain mileage limits. If you don’t, you incur extra costs, which can be significant.|
So, lease or own? If you want or need to start fresh with that authentically new-car smell every few years, leasing may be the right choice for you. If you instead expect to own each of your vehicles for a while, purchasing them usually costs less in the long run. If you’re not sure and you’d like a deeper analysis on the trade-offs involved … that’s where some sturdy financial planning can come in handy.
SAGE Serendipity: If you’re tired of being tired, or talking about being tired, The Huffington Post has a great collection of articles in their Sleep + Wellness section that may help. Former founder/editor Arianna Huffington wrote a book on the subject – and gave a TED Talk. They are serious about sleep.