Deciding to get a new car is a big, yet very exciting, decision. One of the first things you should determine is whether you're looking to buy or lease, because that can impact the type of car you ultimately end up with. There are financial and lifestyle pros and cons to each, so it really comes down to what you're looking for and what you can afford. You can start by asking yourself the following questions:
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How much mileage do you plan to put on the car each year?
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What is the primary purpose for the vehicle? (If it's work-related, there may be some tax deductions in your future, regardless of whether you lease or buy)
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Would you rather have a new car every three years, or eventually have no car payments?
Leasing
If you drive fewer than 12,000 miles a year, and/or are a car enthusiast, leasing is an attractive option. As long as you're okay with having a car payment, this allows you to pretty much have a new car all the time. If you decide to lease, your goal should be to walk out of the dealership without putting any money down, with the exception of your first lease payment. Why? Because if the car is wrecked or stolen in the first few months of the lease, you're out all that money you put down. The insurance payout on a wrecked leased car goes to the auto manufacture's financial services company-not you.
Another point to consider is that leasing typically has lower monthly payments than a finance payment on the same car. So if you've been eyeing something that is out of your purchase price range, you may be able to get behind the wheel through a lease.
Buying/Financing
On the other hand, if you drive more than 12,000 miles per year, or want to not have a car payment in the long run, purchasing is a financially better choice. You do have to consider, though, that down the line, you're looking at the added costs of maintaining the car and repairing the inevitable issues that arise.
Here's a quick overview of the pros and cons to each option:
Pros of Leasing
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Typically, lower monthly payments with a low or no down payment
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You're in a new car every few years
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You pay less sales tax
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The car is always under warranty, limiting your exposure to repair costs
Cons of Leasing
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You don't own the car at the end of the lease (although there is always the option to buy)
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Your mileage is limited and purchasing additional mileage can be expensive
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Long term, leasing is more expensive than buying and keeping a car for several years
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There can be many surprise fees at the end of a lease
Pros of Buying/Financing
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Can be more cost effective if you keep your car for several years
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At the end of your financing term (if you don't buy the car outright) you're free from having a car payment
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You're free to drive as much as you'd like
Cons of Buying/Financing
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There's a higher down payment when you purchase a car
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Depending on the price, monthly payments can be higher than a lease
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Once the warranty expires, you're responsible for repair costs (although you can purchase extended warranties, adding to the cost)
No matter which option you choose, drive safely and happy shopping! And if you need a place to save up some money for that down payment, check out the great rates we have on our savings accounts.
The information mentioned in this article is for informational purposes only, is intended to provide general guidance and does not constitute legal or tax advice. Each person's situation is unique and may materially differ from the information provided herein. You should seek the advice of a financial professional, tax consultant and/or legal counsel to address your specific needs before any financial or other commitments regarding the issues related to your situation are made. Popular Bank does not make any representations or warranties as to the content contained herein and disclaims any and all liability resulting from any use of or reliance on such content.