Depending on your annual driving habits, your vehicle needs and your credit standing, a lease or a purchase may prove beneficial. Leasing does not make financial sense for everyone, although it may appear beneficial because of its cheaper payment or short-term ownership. Before pursuing either option, consider which one is financially beneficial or most suitable for your driving habits.
Future Market Values
Leasing payments are based on a vehicle's expected depreciation. Once the lease is over, the bank resells the leased vehicle for the purchase amount that's stated in your contract. Future market value is predetermined at the beginning of your lease. If the leasing bank assumed the car's future value incorrectly, it assumes the loss. Even if your vehicle drops significantly in value, the bank loses money, not you. If you purchase a vehicle, you assume all risk for future market value when trading or selling the car in the future. Purchasing the vehicle may prove beneficial if the car holds its value.
Payment
Both leasing and finance purchase options offer payment benefits. If you intend to lease, you're only paying towards depreciation. You do not have to pay more toward your monthly payment amount. If financing the vehicle, your payments may prove higher, but you are paying for vehicle ownership. You can increase your monthly payment or pay off your loan early if you prefer. Paying more toward a vehicle finance decreases your loan payoff amount, so you can trade in or sell your vehicle sooner.
Interest and Fees
Both leasing and finance purchase options require an interest rate, unless you obtain zero-percent financing. Interest is charged to auto loans on a daily basis, known as a per diem, which is based on your monthly loan amount. Making extra payments toward your loan's principle amount decreases the interest paid back over the term of the loan. Leasing can result in various fees charged by the leasing company, such as wear and tear, early termination or over mileage fees. If you properly maintain your vehicle and abide by your contract, leasing is beneficial. Purchasing the vehicle eliminates any risk of these fees.
Insurance Considerations
Expect to be required to purchase a full coverage insurance policy for your vehicle whether you are leasing or purchasing. Leasing banks often require an additional gap insurance policy. In the event that your vehicle becomes a loss from theft or an accident, your insurance company pays your lender for the vehicle's market value. Gap insurance pays for the gap between the vehicle's market value and the bank's loss. As long as you don't pay your entire lease upfront or provide a large down payment, your loss is minimal. If financing, your lender will return any excess insurance payment after the loan is paid off, which is worth your consideration if you plan to offer a large down payment.
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