Buying or leasing a car is a major decision. It’s important to consider all of your options because both have pros and cons. Also, it’s a good idea to start saving now as no matter which option you choose, you’ll be making regular monthly payments and you may have a down payment requirement. To ensure you have the funds you need when you’re ready to buy or lease a car, open a savings account and begin making contributions today. Then, review the pros and cons of buying vs. leasing a car below to see which best fits your needs and budget.
Pros of buying a car There are many benefits to buying a car, which include, but are not limited to, your ability to drive your car for as many miles as you want, customize your car the way you want, i.e., paint color and sound system, and get great deals like rebates or discounts in year-end sales. Plus, you don’t have to worry about paying fees for wear and tear on your car, and you can profit from the trade-in or resale value should you decide to sell down the road.
Cons of buying a car While the above benefits are certainly enticing, it’s also important to consider the cons of buying a car, especially as compared to leasing a car. To begin with, your monthly payments are often higher, but without the added benefit of a new car every three years or so, unless you choose to trade it in. Plus, your car loses anywhere from 20 to 30% of its value as soon as you drive it off of the lot due to depreciation.
Pros of leasing a car Leasing a car may be an option for you if you’re not quite ready for the commitment or cost of ownership. The primary benefit to leasing is your ability to drive a new car with new technologies every three years, eliminating the concern for depreciation. Plus, when you lease a car, you often have access to subvented deals from manufacturers that either decrease the interest rate or increase the residual value. Finally, you may be able to receive tax credits if you lease an electric car.
Cons of leasing a car Leasing might look pretty appealing, especially since monthly payments are often lower than the financing payments you would make when you buy a car. However, there are some downsides to leasing you should consider, including the fact that you don’t actually own the car, which imposes a series of unique restrictions. These include a limit on the number of miles you can drive (it generally costs $.15 - $.25 per extra mile) and wear and tear permitted to the car. Failure to meet these limitations can result in fees when your lease ends. You’ll also be required to lease another car at the end of your term (or complete a finance-to-purchase so you own that car). Finally, you may need to purchase Gap Insurance to cover extra costs should you be in an accident that totals the car, as you will still need to pay back the lease contract amount on top of repairs. For these reasons, and the greater potential for hidden fees, leasing can be more expensive in the long run.
Is buying or leasing a car the best option for you? After considering the pros and cons of buying vs. leasing a car, what is the best option for you? Can you afford the down payment and ensuing monthly payments of a new car? Will whatever choice you make today still make sense in a few years? For example, if you drive many miles throughout the year, a lease may not be the best choice; but if you want a new car every two to four years and can maintain it as required, a lease might make more sense.
Save to buy or lease your first car If you’ve been thinking about buying or leasing a car, now is the time to open a savings account or bank CD (Certificate of Deposit). A bank CD is similar to a savings account, but CDs have a fixed term and interest rate and can range from 11 months to three years. With bank CDs, the funds must remain in the account until the end of the term, and the money and accrued interest can be withdrawn at that time. This may be a good choice if you know you won’t be purchasing or leasing a car during the CD’s term. For example, you may want to open a bank CD in January to save for December’s end-of-year car deals. On the other hand, a standard savings account offers you the freedom to make withdrawals as needed, but the interest rates you earn are not as high. Choose the right savings vehicle for you and start saving to buy or lease your dream car.
Sponsored content was created and provided by RBS Citizens Financial Group.