In 2017, new vehicle sales crossed the $1 trillion mark across all franchised dealerships, representing 17.14 million cars, trucks, vans, and SUVs. During the first half of 2017 alone, 2.1 million vehicles were leased. Buying vs. leasing, which would is best?
While buying dramatically outpaces leases by far, the latter still represents a large part of the automobile industry. In many cases, leases seem like attractive options, mainly because the advertised monthly payments are substantially lower than what usually comes with a loan-based purchase.
However, it’s important to look beyond the monthly cost if you want to figure out whether buying or leasing is right for you.
Richard Reina, the Product Training Director at CARiD.com, shared his insight on the battle of buying vs. leasing, allowing you to better determine which approach is actually better for your situation.
Buying vs. Leasing: Which is Financially Smarter?
According to Reina, buying is usually less expensive than leasing in the long run. The attractive monthly lease payments you see in commercials are commonly for “low-mileage leases,” meaning they are well below the average amount of mileage a person drives in a year. Mileage caps limit the number of miles you can drive per year as part of the contract. Exceeding that amount comes with a financial penalty, and it can be large.
Most leases require large down payments, usually between $1,000 and $3,000, and you then have to contend with the monthly payments. At the end of the lease, which usually lasts 36 months, you have a choice. First, you can make a “balloon payment,” a large payment that covers the rest of the vehicle’s cost all at once. Second, you can surrender the vehicle and lease or buy a new car. But the real issue with leasing is this: you never get out from making monthly payments.
When you buy a car, you own it. You don’t have to deal with mileage caps and can keep the car after you finish making payments. Most vehicles will last far longer than the time it takes to pay off a loan, as long as you get proper maintenance, giving you a chance to come out ahead.
Does It Ever Make Sense to Lease?
In some cases, leasing does make sense. If you want a new car every few years, then leasing gives you that ability. Then, you’ll always have access to the latest technology, which can be a benefit.
Additionally, most leased cars are under warranty for the duration it is in your possession. That can provide peace of mind.
Many leases also include routine maintenance. For your monthly payment, all of your basic needs are met. It may make luxury cars more affordable, as long as you can function within the mileage limits.
Best Way to Negotiate a Lease
Negotiating on a lease is harder than on a purchase, but it is possible to do. Typically, leases come with the lowest monthly payment possible and require a certain down payment, but there may be some wiggle room.
Examine the interest rates and down payments to start. Additionally, ask the salesperson what the selling price of the vehicle is for the lease. There usually isn’t much room for adjustments, but it never hurts to try, especially if you are a well-qualified shopper.
It’s important to note that it is possible that you won’t qualify for a lease, as credit checks and similar evaluations impact the final approval. Furthermore, you need to understand that you don’t build up equity in these arrangements. While you are responsible for wear and tear, you don’t own the car unless you purchase it when the lease is complete.
Best Way to Negotiate a Purchase
If you decide that buying is the best choice for you, then you need to be ready to negotiate. In comparison to leases, you usually have more room to get a good deal with a purchase.
Begin by researching the vehicle’s invoice price, since this is what the dealer paid to have the car on the lot. This information is usually accessible from resources like Kelley Blue Book, Edmunds, and TrueCar.
Ignore the MSRP, as this sticker price only represents what the dealer is asking for the vehicle. When a car is in demand, the markup between the invoice price and MSRP can be thousands of dollars.
Don’t try to work your way down from the MSRP. Instead, start at the dealer invoice price and negotiate up.
Negotiation Tips and Tricks
Negotiating a lease or purchase is usually stressful or even overwhelming. If you are nervous or inexperienced, consider bringing a friend or family member along. Not only can they give you advice, but they also serve as an objective third-party. They will keep your best interests in mind and aren’t likely to get emotionally attached to a vehicle or let their feelings impact their decisions.
Also, don’t succumb to the pressure if the salesperson tries to make you stick to a decision right away. Often, it’s best not to formally agree to anything at all on the day you start looking. Instead, consider sleeping on it. This will help you think with a clearer head since you are away from the salesperson.
While waiting means you might miss out on the vehicle, it’s important to remember that there are a lot of automobiles around. Unless you are shopping for an incredibly exotic car (and even then), finding a similar car for sale is usually easy.
Read The Contract
Whether you decide to lease or buy, you always need to read the contract. All of the details are in the paperwork, and your signature means you agree to those terms. If you see something you don’t like or understand, point it out and ask questions. In some cases, you can negotiate certain fees away, and you can always back out of the deal if you haven’t signed on the dotted line.
Ultimately, in the buying vs. leasing debate, either approach is viable. Consider your goals for the car, such as how long you want to keep it and how far you need to drive it, first. Then, examine your budget and see which option seems like an ideal fit. Finally, negotiate, and don’t be afraid to walk away if you don’t like the deal.
A car is a big commitment whether you buy or lease, so you should always proceed with caution, no matter which option you choose.
What are your thoughts about buying vs. leasing a car? Tell us about your experience below.
Looking for more great articles? Here are a few to get you started:
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