Leasing and Financing are two primary methods of securing your next vehicle. Autos Consultants has reviewed both purchasing methods and outlined their pros and cons.
Leasing pros: Never owning the car without a warranty
Most lease terms will be the same length as the vehicles factory warranty. This means that you are unlikely to experience any expensive mechanical repairs during your lease. This is a huge advantage for budget conscious shoppers because you won’t have any unforeseen repairs. This is particularly advantageous for high end luxury buyers, often new cars in this category have somewhat unproven technology, which may prove temperamental. You generally will not be held accountable should any of the new electronics fail.
No depreciations:
Cars notoriously depreciate at a rapid rate. When buying a new car it loses roughly 20-30% of its value the moment you drive off the lot. When leasing, this massive depreciation is not your financial responsibility. You will drive the car for the term of the lease and return it to the dealership once the lease has ended.
Accident protection:
Another major advantage of leasing is if your vehicle is accidented. If you are the owner of an accidented vehicle that accident will live with your vehicle's history and jeopardize the resale value. On a lease, if there is an accident, as long as the body and mechanicals have been repaired, you will be able to return it with no additional penalties.
Guaranteed buy back:
Upon completion of the lease term, you have the option of purchasing the vehicle. Having driven it for what is usually a 3 or 4 year term, you will have a much better sense of whether or not the car is worth buying. The residual value or buy back will be set when you take the car and you will have a few years to decide if the car is worth keeping longer than the lease.
Customer loyalty programs:
Many brands offer customer loyalty programs to incentivize you to stay with them. The most frequent type of loyalty incentives are reduced interest rates. Companies with offer loyal customers who decide to remain with the brand, a reduced interest rate on a second or multiple vehicle added.
Another type of loyalty program is the Lease Pull Ahead. This gives you the option to terminate your lease a few months early and have the manufacturer cover a small number of payments (usually 3-4 month) if you decide to lease a new vehicle with them.
Leasing cons: No Equity at the end of the term
While leasing a vehicle allows you to amortize the payments, the obvious drawback is that upon completion of the lease you have little to show other than the fact that you have avoided a large dent in your bank account. If you still need a vehicle at the end of the lease you will be starting your shopping all over again.
Lease return charges:
Lease return charges are infamous cash grab for the manufacturers. They will overcharge the leaser for most dents and scratches on the car. What might be a few hundred dollars of light wear and tear at a body shop, the leasing company could charge an exaggerated rate to do the repairs when the lease is completed.
Lease protection:
Lease protections is a tool that clients have at their disposal to avoid end of lease charges. Many companies offer a lease protection package that will waive the charges for wear and tear and minor damages, which may occur while the car is in your possession. This protection could be of great value to many leasing customers. The downside is that it must be purchased with the car on day one and cannot be added to the lease retroactively.
Financing pros:
Should you choose to finance a car, you are taking the total cost of the vehicles and dividing it up over a predetermined amount of time (amortizing). Over the next 3-7 years you will pay off the total value of the car and possibly build some equity. That means when it is time to sell, This mean will will have recuperated some of the car's value.
Financing rates:
Many manufacturers offer incredible finance rates. You could potentially get a loan for 36-84 months with little to no interest. No other industry offers such low rates on long-terms interest loans.
Longer term financing:
Some manufacturers offer 7 and 8 year finance terms giving you lower monthly payments and the ability to keep the car at the conclusion of the term.
Used car market:
Used cars are often available for long term financing. Some manufactures offer their own certified pre-owned special finance rates, which may be as low as the rates offered on new cars. There are some great values to be found when financing a pre-owned car.
Some of the cons associated with financing include the owners responsibility for the depreciation, accident repairs and higher monthly payment. If you are buying a brand new car, big depreciation is unavoidable and if you want to sell it a year or two into finance most people will owe more than the car is worth. If you have an accident with the vehicle it could hurt its resale value again contributing to more negative equity.
Another con to financing is that the payments are often higher than when leasing. With financing you are responsible to pay for the whole value of the car plus tax. With a lease you are only paying for a proportional percentage of the car and thus the payments are usually much lower.
For any question regarding leasing or financing advice on your next car purchase or general inquiries on the topic, please reach out to The Autos Consultants.
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