To Buy Or To Lease? That Is The Question.

To buy or to lease? That is a common dilemma among a lot of consumers. Which is better? To be perfectly honest, neither is better than the other. It simply depends on your situation. For someone who likes to always have a new car and only drives mainly to and from work and around their local area, leasing a car could be the better suggestion. However, for a college student who commutes back and forth to school, works and is always running around frantically in their vehicle, leasing a car would be a bad idea. Buying would be much better for him/her.

Leases and loans are two very different methods of automobile financing. One only finances the use of the car while the other finances the purchase of a vehicle and each has its own benefits and drawbacks, just like everything in this world. It's not possible to simply say that one is always better than the other because the answer depends on each specific situation.

Like I said before you must think about the priorities in your life right now when deciding if you should buy or lease a vehicle. Is having a new vehicle every two or three years while having no major repair risks more important to you than long-term cost? Or are long term cost savings more important than having a lower monthly payment? Here are some more questions for you to think about. Is having some ownership to your vehicle any more important than having a low up-front cost along with no down payment? Is it really important to you to pay off your vehicle and be completely debt-free for a while, just even if it means having higher monthly payments for the first few years?

So making the lease or buy decision isn’t so cut and dry as you would think, right? These are just a few things you need to take into consideration when deciding to buy or lease. You need to understand also that buying and leasing are essentially different and not just two different versions of the same thing.

When you buy a vehicle you are paying the entire cost of the vehicle, regardless of just how many miles you drive in it. You will typically make a down payment, pay a sales tax in cash or combine it with your loan and you will pay an interest rate that is determined by your loan company which is based on your credit history. You are then required to make your first payment a month after you have signed your contract.

When leasing a vehicle you will pay for only a portion of the cost of the vehicle, which is the part that you will essentially “use up” during the time that you drive it. You also have the option of not making a down payment and you can pay your sales tax on your monthly payments (but not in all states). You also will be paying a financial rate (called a money factor) which is very similar to the interest rate you would pay on a loan. You may also be required to pay some special lease-related fees and a possible security deposit that you don’t have to pay when you buy a car. And you will then make your first payment at the time you sign your contract (which is for the month ahead).

Lease payments are usually made up of two different parts: one being a depreciation charge and the other being a finance charge. The depreciation part of each of your monthly payments will compensate the leasing company for the portion of the vehicles value that is lost during your lease. The finance part is the interest on the money that the lease company has tied into your car while you are driving it. Basically, you are really borrowing the money that the lease company has used to purchase the car from the dealer for you. Then you will repay that part of the money in monthly payments and repay the remainder when you choose to either buy or return the vehicle when your lease is up.

Loan payments also have two parts to it, just like lease payments. These include a principal charge and a finance charge (this is similar to lease payments). The principal pays off the vehicle purchase price, in full. While the finance charge is the interest on the loan that you have in order to purchase the vehicle. However, because all vehicles depreciate in value by the same amount regardless of whether they are leased or have been purchased, part of the principal charge of each loan payment will be considered as a depreciation charge, which is just like leasing- it is money you will never get back, even if you sell the vehicle in the future. The remainder of each loan principal payment goes toward the equity (resale value) of the loan. It is what remains of your car’s original value at the end of the loan after depreciation has taken its toll.