Benefits of Buying and Leasing Vehicles - Consumer Tips | Fall... On The Road Special Section

Love It or Lease It
Benefits of Buying and Leasing Vehicles

Shopping for a new vehicle can be as agonizing as it is exciting. Though it can be fun to find and drive a new vehicle, it can also be nerve-wracking, particularly if the vehicle has a high price tag.

As any buyer knows, there are always options when it comes to finding a new car. Those options are buying and leasing. Each has its distinct advantages and disadvantages, and buyers should consider the pros and cons of each before making a commitment.

Benefits of Buying

Buying a vehicle, even in the current economic climate, still has many advantages.

* Ownership. Ownership is often the most discussed benefit when deciding to buy or lease a vehicle. For those who will finance the car, once the terms of that agreement have been met, the car is now an owned asset. The same thing goes for anyone buying a pre-owned vehicle and paying for it upfront. The fact that the vehicle is an asset is a security blanket. In the case of unexpected financial hardship, for instance, the vehicle can be sold, whereas a vehicle on lease cannot.

* Depreciation. While it's true a car depreciates tremendously in value the moment it's taken off the lot, that's only half the story. Much of a vehicle's value depreciation is in its early life. That depreciation slows as the car ages, especially if the car is well taken care of. The longer a driver owns the car, the lower the depreciation expense will be. On the contrary, when leasing a vehicle, the individual is often paying the most for the high rate of early-life depreciation, an expense the dealer accounts for when determining the monthly lease expense or down payment if there is one.

* Insurance. Lease terms often mandate extensive insurance coverage, or what's commonly referred to as "full coverage." This can prove costly. However, drivers who own their vehicles (financing often requires extensive coverage as well) outright have more freedom to pick and choose their coverage, which can greatly reduce their annual insurance bill.

Benefits of Leasing

As beneficial as buying can be, that's not to say leasing doesn't also have its advantages.

* Commitment factor. When leasing a vehicle, the financial commitment is not as big as it is when buying. Many lease agreements have something similar to down payments known as capital cost reduction payments. These are often small and don't affect the monthly lease payment, whereas a small down payment when buying could greatly affect the monthly payment, resulting in a higher interest rate and higher monthly commitment.

The commitment factor also extends to how well a driver likes a particular vehicle. Lease terms can be as short as 12 months, allowing for drivers to change cars after just a year should they discover they don't like the car. When financing or buying outright, opting out is substantially more difficult, forcing owners to either sell the car or attempt to work out a deal with the institution that made the loan.

* Monthly cost. When leasing a vehicle, a buyer's monthly payment will be lower, and in many cases substantially so, than if that buyer were to finance. This allows for more financial freedom.

* Reliability. There is typically very little risk when leasing a vehicle as to that vehicle's reliability. The manufacturer's warranty might not have expired yet and because of mileage restrictions common to most leasing agreements, the vehicle likely has not experienced any significant wear and tear. When buying a car, particularly a used car from a private citizen, the warranty is typically expired and there's no telling how much wear and tear the vehicle has gone through.