Both options present attractive advantages, along with some disadvantages. An example of the lease verse buy dilemma can be applied to a vehicle of any value. If you are planning to purchase a vehicle that is worth $20,000 or a vehicle that is worth $70,000, there are two main ways to pay for this vehicle.
When buying a vehicle, most individuals take out a loan to pay for the vehicle, and then make monthly payments on the loan. The loan is also based on two main charges: principal charge and a finance charge. While these charges are similar to that of the lease, they are slightly different. A principal charge is based on the total value of the vehicle, which the finance charge is the interest placed on the loan.
When you buy a vehicle, it is yours to keep as long as you make the monthly loan payments. You are free to drive as much as you want and make any customizations to the vehicle. However, there are a couple of disadvantages:
1) A monthly loan payment is always higher than a lease payment.
2) When you get tired of the vehicle, you have to sell it on your own
To lease, you have two possible choices: either lease through a dealer’s finance source or through an independent lease company. A conventional dealer has a captive finance source, which can be the car manufacturer’s financial company or a major national bank. Independent lease companies have no financial obligation to any single one manufacturer financing source, but work with dealers anywhere in the country. At the beginning of the lease, you have to pay a refundable security deposit, typically equivalent to one monthly payment, to safeguard against non-payment and any incidental damage done to the car at the end of the lease. You are also required to pay an administrative charge, called acquisition fee. Other fees include licenses, registration, title and any state or local taxes. During your lease, and you expected to honor your monthly payment obligations. Any failure to do so will result in late-payment charges. You have to pay any traffic tickets, emission and safety inspections and ongoing maintenance costs. Ending your lease early will result in substantial early termination charges.
At the end of the lease, expect to pay any excess mileage costs, charged at 10 to 20 p a mile. Any incidental damage done to the car, and deemed to be above normal, will result in excess tear-and-wear charges. Finally, if you choose not to purchase the vehicle, then you have to pay a disposition fee.
Several factors to consider about leasing:
1) You do not own the vehicle; therefore you cannot make any modifications or customizations to it.
2) If you get tired of the vehicle, you still have to keep it until the end of the lease term or face a large penalty.
3) You will have a set amount of miles that you can drive during the term of the lease, and if this is exceeded, you will be required to pay for each mile over the original total.