If you are one of the many young people looking for a new ride, you have an important choice to make. For years, carbuyers have grappled with whether to buy or lease their new car. For a young carbuyer who just entered the market, this can be a particularly confusing decision. Both approaches have advantages and the right choice for you will provide significant value. Before you plunk down money on a car and an auto insurance policy, keep these factors in mind:
What is a lease?
You may have heard the term "lease" in relation to carbuying, but you may not know exactly what it means. Leasing a car is similar to financing a car purchase over time, according to U.S. News & World Report, but it introduces some additional complications that may make it more or less appealing, depending on your situation.
When you lease a vehicle, you essentially buy the car for a set amount of time, usually three years. The dealership will calculate a monthly lease rate based on the difference between the car's total value and it's anticipated value after three years of use.
The three year system can be beneficial, because it generally coincides with the total length of a warranty on many new cars. That means that individuals who lease may never own a car that is outside it's manufacturer's warranty, which can cut down on repair costs.
"A lease can help you cut down on repair costs."
There are other advantages to a lease. Because the monthly cost is calculated off of the price of the car after three years rather than the vehicle's total value, your monthly bill may be less if you choose to lease rather than buy. Additionally, you may find that you can put less down up front on a lease agreement, though that will increase your monthly payments in the long run.
Setting aside these other benefits, leasing is a great option if you want to keep up with the latest automotive advancements. Because you receive a new car every three years, you'll always be on the cutting edge of style and technology. Unfortunately, there are some shortcomings you'll have to consider for that privilege.
Why leasing might not be the best choice
While leasing offers many appealing qualities, it also introduces limitations that people who purchase cars outright don't need to deal with.
One of the biggest issues is a mileage limit. A dealership will make you agree to a set annual mileage limit at the start of the lease, and if you exceed that amount, you will face monetary penalties. If you want more freedom, the cost of the additional miles will get added to your monthly payments, which can negate some of the lower payment advantages a lease traditionally provides.
The dealership will also specify that a lease allows for a certain amount of wear and tear on the car, but the amount of wear that is acceptable is generally up to the dealer's discretion, according to the financial site Money Under 30. If you do more damage to the vehicle than the dealer anticipates, they can hit you with additional charges.
So should you buy?
If you plan on keeping a car for more than three years and want to be free from limits on wear and mileage, buying is definitely the best bet. While leasing offers some neat perks and lets you stay ahead of rapidly changing automotive technology, it also boxes you in. If you buy, you are completely free to enjoy the open road whenever you want.
Whether you lease or buy, car insurance is a necessity. Visit CoverHound to compare auto insurance quotes.