Should You Buy or Lease Your Next Car?
With a little research, you can make the best choice for a vehicle and financing
Today’s automobile buyers are empowered with many options, lots of information and eager dealerships willing to negotiate better terms, whether you lease or buy.
Car dealers also know that today’s car buyer has more information and more dealership options, putting you in the “driver’s seat” when it comes to negotiating the best price. If you don’t like the deal offered by car dealer A, it’s a short drive to car dealer B who offers better terms and lower prices, so do your research to get the best deal on the best vehicle to suit your needs.
Today’s car buyer is empowered with the facts – cost to dealer, car history, MSRP, warranty options, financing options, those extra features that make driving more enjoyable – all of that information is available on car-buying web sites. So, do your research.
Finally, start your car search several months before your current lease runs out, or before you know you’re going to make a car purchase, so you have time to walk away from any deal that doesn’t suit your needs. A car purchase is a big expense – one that will be around for a few years if you finance it, so do your research before signing a lease or purchase agreement with any dealer.
Use the Internet
Lots of helpful tools are available on the Internet to help you make the decision whether to buy or lease. Web sites like Carmax®, AutoTrader® and CarsDirect® contain information and calculators to help you decide whether to buy or lease your next vehicle.
These web sites offer new and used car pricing from many dealers in your area. With a little research, you may discover that you can save money by buying or leasing a previously-owned car. It may be a good option, especially if the vehicle is still under manufacturer warranty.
Using these car sites, you may discover what the vehicle cost the dealer – an indication of just how much “wiggle room” you and the dealer have during the negotiation process. The cost to the dealer is almost always lower than the manufacturer’s suggested retail price (MSRP) so the sticker price isn’t necessarily the best price you can get from a dealer.
Lease or Buy?
Leasing may be the better choice if the vehicle is used exclusively for business. Costs are often tax deductible. Before you make your decision, consult your accountant, who can tell you which is the better alternative for your business or personal needs.
It’s important to remember that when you lease, you don’t build equity in the vehicle. You never own it. For many consumers who don’t want the headaches of car ownership, this is a positive. However, if you’re a consumer who buys a new car and drives it for 10 years, a car purchase may serve you better than a lease.
For easy-to-use calculators to help you decide whether to buy or lease a car, visit Nevada State Bank’s Learning Center.
Mileage limits are always a part of any car lease agreement. Typically, the lease agreement states that your mileage limit is 12,000 or 15,000 miles for each year the lease is in effect. If you think you’ll exceed those mileage yardsticks, you could pay up to 25 cents a mile for every mile over the lease agreement, so consider your driving habits and how many miles you log on the odometer each year.
The cap reduction is an out-of-pocket expense due at the signing of the lease. Let’s say your anticipated monthly lease payment is $150 with an upfront payment of $3,600 on a three-year lease. That cap reduction works out to $100 a month over three years so, in fact, your lease payment isn’t $150 a month – it’s $250 a month when you factor in the upfront cap reduction payment of $3,600 spread over three years. Do the math to determine what you’re really paying over the term of the lease, and identify open-ended expenses you may incur, like excessive mileage.
Another possible open-ended expense is excessive wear and tear on the car. If the tires are worn, if the windshield is cracked or the seats stained, you’re likely to pay excessive wear-and-tear charges. If you lease your next car from the same dealer, these excessive wear and tear costs may be negotiated away, but if you’re moving on to a new dealership, you could pay a lot more for a leased vehicle than one you purchase outright.
Financing Your Vehicle
If you decide to purchase a car instead of leasing it, shop around for the best car loan rate instead of automatically accepting the financing offered by the dealership. You may be able to beat the dealer’s terms by getting a car loan from your bank. Talk to your banker first to get pre-approved for a loan before going car shopping. This will not only let you know how much car you can afford, but also give you another bargaining chip to use when negotiating at the dealership.
Today, you have more information and more options than ever before. Be a smart car buyer. Know what you need, what you want and what you can get for your hard-earned money using Internet resources. With a little research, you can make the best choice to fit your needs and your pocketbook.
The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank, a division of Zions Bancorporation, N.A. Member FDIC