With the average age of automobiles on the road above 11 years, many drivers will soon be in the market for a new car or pickup. When you’re ready to shop for your next car, a key question quickly becomes: lease or purchase?
The best answer depends on finances, personal lifestyles and several other factors. There are online calculators available to help compare leasing versus buying. Which option is right for you? More than 25 percent of the people who acquired new cars during the second quarter of 2013 leased. Here are several things worthy of your consideration:
You want a more expensive car than you can afford to buy. Monthly lease payments typically are lower than monthly payments when you purchase. So you get more car for your dollar when leasing.
Interest rates now are low. Your monthly lease payments will reflect lower interest rates: lower interest rates = lower monthly payments.
Residual values currently are very high. Residual value is how much the vehicle is worth at the end of the lease. According to GM Financial Dealer Services’ Executive VP, Kyle Birch, “Residual values are improving across all brands, lowering lease payments for the customer.” Many of the newest generation of cars are expected to hold their value longer than the last generation contributing to higher residual value.
You don’t want to keep your car for a long time. Typical lease periods are shorter than the average car-purchase terms. How likely is it that you’re going to want to hold on to your car for five or more years? Ally Financial’s President of Auto Finance, Tim Russi, points out that, “With a lease cycle, customers tend to have more flexibility, which aligns to current consumer behaviors.”
Sales taxes may be less when leasing. While businesses get to deduct monthly lease payments, individuals pay sales taxes only on monthly payments, not the whole vehicle price, which amounts to a nice tax reduction for individual buyers.
Leased new cars are covered by warranty. A car under warranty is a car without big service bills.
Automotive technology is improving at warp speed – Every year’s new models come with a raft of advanced technology – not just electronic wizardry to improve communication and entertainment options but also vastly improved safety features. This extends to the structural soundness of the vehicle as better and stronger materials are incorporated.
Every year brings more fuel-efficient vehicles – Cars from just a few years ago are gas hogs when compared to today’s models, including clean diesels, hybrids, electric cars and super-efficient gasoline-powered vehicles. Leasing allows you to take advantage of fuel-efficiency advances.
You are a low-mileage driver. Most leases cap your annual quota of miles. Drivers who generally use fewer than 15,000 miles don’t incur additional mileage fees. If they do exceed, they’re charged per added mile. However, if you own a high mileage car you lower its trade-in value on a new car purchase. Even better, trading your current car, if fairly late model, may more than cover the cost of the down payment of a new-car lease.
Increased volume of leased vehicles is also a win for shoppers of late model used cars, as it elevates the number of off-lease returns re-entering the marketplace. That, in turn, creates more inventory choices for prospective buyers of newer, late-model, low-mileage vehicles, another win-win. Whether you lease or purchase, now is a great time to get into your next new car.