Most people have become accustomed to the pay-as-you-go smart-phone mentality. Instead of investing a few thousand dollars once to purchase a new, or used car, they’d prefer to pay a 200-300$ monthly fee to lease one. While this may seem like a reasonable price, especially considering that most families already pay cable television, bills and other fees, it is actually detrimental for long-term economics. Obviously, if finances are not a problem for you, there’s no problem in burning a few extra hundred dollars every year, but for those who have tight budgets, the annual difference in costs are worth re-examining.
Another reason for leasing would be that you are simply visiting Dallas, and there is no point in taking your personal car. Last but not least, behavioral patterns of drivers have shifted. During the second World War, people were taught that the financially responsible thing to do was to own a car and a house. Nowadays, the personal vehicle is seen as more of a commodity than necessity.
Numbers Which Prove that Car Leasing is Expensive
A recent study analyzed the three different ways that a person could acquire a Honda Accord EX: buying a new model, buying a used one from 2011, with 36000 miles, or leasing it. At first glance, it seemed that leasing it would be the cheapest solution when you look at out-of-pocket expenses. Apparently, it costs somewhere around 5000$ less than buying a new one, and 10.000$ less than buying a used one. However, if you take into consideration that you will be owning nothing by the end of the year (and most cars are used for an average of six years), the math changes. If you factor equity, leasing the car will actually lead to financial losses.
In the end, it all depends on how much you actually use the car, and how long you think you will be using it, and how much money you can invest in a vehicle. For example, if you don’t drive very much, you will probably be better of leasing a car. Here are a few factors to consider when weighing leasing a car vs. purchasing a car.
How Much do You Drive?
Time horizon is definitely one of the most important factors that will ultimately help you decide on the practicality of owning a personal car. If you drive all over the country, you should not be leasing, because according to Alec Gutierrez, senior market analyst of automotive insights at Kelley Blue Book, you risk being hit with significant penalties.
Do You Really Need a New Car?
As cool as it may be to own a car, the question is if you actually need it. There are many sweet deals for older cars, but it is up for you to decide if they are suitable for your needs. Some experts argue that extra safety measures are taken on modern vehicles, but this doesn’t mean that paying for the latest stereo system is justifiable. Another thing to consider is that buying used will usually result in a larger down payment, but thanks to the repossessed nature of the “collateral” it will be easier to qualify for a new car loan.
Probably the best thing about leasing a car is the fact that it will not result in any financial disruption: it is cheap, and easy. Also, you don’t have to worry about repair or maintenance costs (except oil changes and tire rotation). The only thing that is more expensive about leased cares is the insurance cost of the vehicle.
How Leasing Works
When you are leasing, you are actually paying for the value that the car loses over the course of your lease. In this regard, cars that retain their value for longer periods (eg. BMW, Honda, Mercedes) will lower the monthly payment. Before leasing a car you should calculate how much you are likely to drive, and for how long. Talk with different dealers and ask for their quote before shopping.