There’s a certain level of excitement that goes along with getting behind the wheel of a brand-new car. The smooth drive, the smell, the feel of the steering wheel. With no shortage of superlatives to describe a fresh new whip, there’s few things more exciting than driving one off the lot.
Unfortunately, cars are notorious for losing their value in that exact same moment you officially become its owner. This fact is a reason why many people opt to lease their vehicles as opposed to buy them outright.
Car Buying in 2021
With a shortage of microchips that govern a cars computer system, there has been a tremendous shortage of new vehicles. This has made the used car market white hot as dealers are looking to get vehicle lessees out of their cars early so they can resell the vehicle.
For those who are in the market for a new car, there is little wiggle room to negotiate prices right now, as supply is simply well below current demand. This means that you can expect to pay full price for a new car for the rest of 2021, and most likely the great part of 2022.
What About Leasing?
Leasing a vehicle is another option for those are need a car but are weary of the current costs. The rules for leasing a vehicle are the same now as they were prior to the pandemic, so let’s take a look at what this option entails.
Leasing a vehicle is basically like renting it for a predetermined amount of time. This means that the dealership remains the owner of the vehicle, and you pay a fixed monthly price to be its driver. The monthly price associated with a lease is based off the depreciation rate of the vehicle rather than its full price, which means you’ll almost always pay a lower monthly rate for a leased vehicle than if you bought it.
When your lease term is up, you’ll either return the vehicle to the dealership and lease another vehicle, or you can always buy the vehicle outright. You need to make sure you’ve taken care of the car and driven it the agreed upon mileage amount or below if you plan on returning it, as dealers will ding you for associated costs like scratches, tears in fabric, or other wear-and-tear beyond normal usage.
Maybe I’d Like to Buy
It should be straightforward to understand what it means to buy a car. When you purchase a car and seek to finance it, you will pay a monthly fee, just like you would with leasing. However, you are the owner of the vehicle, and you are paying off your vehicle loan every month. The car is completely yours for you to do what you’d like to with and to drive however far you’d like.
Pros of Leasing
- Lower Monthly Payments As mentioned above, you’ll almost always pay less money when you lease as opposed to buying.
- More Options Since your monthly payments will likely be much smaller, you can probably afford to take a serious look at some vehicles that are out of your price range for buying, but within your range for leasing.
- Less Money Down Since you’re not purchasing the vehicle, you may even be able to get a lease for no money down. But in general, you’ll never have to shell out as much cash at signing as you would when financing.
- Warranty Coverage Car warranties are usually for three years, which is also the standard lease period. This means that if anything happens to the car in the first few years, it’s likely covered under warranty.
- Seamless Trade-In When you lease, you’re expected to bring the car back, so getting a new vehicle is as easy as bringing the old one back and selecting a new one.
Cons of Leasing
- Bad Credit Beware If you don’t have good credit, you may have a difficult time finding a bank that will take you on in a car lease agreement. You’ll also have to pay more upfront most of the time, too.
- You’re Renting You’ll be paying a monthly fee but you’re not paying for something you own. This means that you aren’t building equity in your vehicle. Essentially, you’ll need to continuously come up with more money to put down every time you lease a vehicle.
- It’s Not Yours It may feel like yours, especially since you’re paying every month, but the vehicle isn’t yours. This means that you can’t modify the car without facing serious fees when you turn it in. Any modification that you do have done will need to be able to be reversed.
- Mileage Limitations Lease agreements usually come with an agreement that you’ll only drive somewhere between 10 and 15 thousand miles per year, or whatever that number is multiplied by the years on the lease term. If you drive a lot, leasing a vehicle may not be for you, or else you’ll pay a good amount in fees at the end of the term.
- Fees Whether it’s excessive wear, too many miles, or modifications, dealers will look to charge you for anything that is “off” with the vehicle before they take it back from you. It is imperative that you keep the car in good condition and adhere to the lease terms as closely as possible to avoid any end-of-lease fees.
Pros of Buying
- It’s Yours You can do what you’d like, when you’d like! You can paint it, swap out the wheels, or make any other customization you want. Heck, you can sell it whenever you want, too!
- Drive Wherever No mileage limits mean you can go cross country and back as many times as you’d like with not a care in the world!
- Build Equity All those car payments will eventually come to an end. This means that you’ll eventually be saving that amount each month once you’ve paid off the loan.
Cons of Buying
- Warranties Run Out As we talked about above, car warranties generally last for three years. If you buy your vehicle, you’re probably holding onto it longer than that three-year window. This means that you can wind up on the hook for some pretty pricey expenses if you don’t opt to purchase an extended warranty at some point.
- Higher Expenses At least in the short-term, expect to pay more when financing. That monthly payment will likely be greater than if you leased, so you’ll need to make sure you can afford to pay each month before getting yourself in over your head.
- Taxes and Interest When buying, you’re going to pay sales taxes and interest on the cost of the vehicle being financed. These two expenses are spared for the most part when leasing.
Buying or leasing a car is going to be a very personal decision. Depending on you, your lifestyle, and your family situation, either option can prove to be best. The most important thing is thinking things through and having as much information as possible prior to signing any type of agreement.