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Leasing offers lower car payments, with a few limitations

Posted November 16, 2017 8:40 a.m. EST
Updated November 16, 2017 8:45 a.m. EST

While both buying and leasing can be wise financial decisions, the benefits and drawbacks will impact everyone differently, making one a better overall decision than the other depending on the shopper.

This story was written for our sponsor, LeithCars.com.

Buying and leasing are the two main avenues for acquiring new vehicles.

Each of these paths has clear advantages and disadvantages. While both buying and leasing can be wise financial decisions, the benefits and drawbacks will impact everyone differently, making one a better overall decision than the other depending on the shopper.

The monthly payment

When one leases a vehicle, they are paying for the depreciation of the vehicle for the length of the lease’s term.

Because they are not paying to actually buy the vehicle, the monthly payments on an identical vehicle will be lower in most cases.

On the other hand, while being more expensive, the monthly payments for purchasing the vehicle are going towards eventual ownership. This makes them an investment rather than simply payment for the use of the vehicle.

Whether lower payments for use of a vehicle or higher payments for eventual ownership is best entirely depends on individual circumstance.

Mileage limits

People who purchase cars do not have to consider mileage limits, but it is a part of lease agreements. This number can be anywhere from 10,000 to 25,000 per year depending on the terms negotiated.

Mileage limits could be seen as a downside of leasing and an advantage of buying a car, but those who do not drive more than average are not as likely to be influenced by this factor.

"Not everyone drives the same amount of miles, so leases can be customized to reflect the amount of miles they drive and give a guaranteed future value as to what the vehicle should be worth at the end of the lease," said Jim Pederson with Leith Automotive Group.

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A major advantage in the leasing column is that the person will be able to drive a new vehicle about every three years. Many companies lease vehicles for this reason. They want their salespeople to present a certain image to customers, and if the company fleet is aging, it could affect sales.

Other people simply enjoy being able to drive the newest models without then being tied long-term to their purchase.

"With technology changing faster, and so many exciting new features and upgrades coming out every year, people are able to upgrade to these new features a lot sooner," Pederson said.

Warranties

When a vehicle is bought and paid for, there are no more monthly payments, but that doesn’t mean the cost comparisons end there. Since a leased vehicle is generally new and with a short term contract, it will remain under warranty for the life of the leasing agreement.

This is a major advantage over a purchased vehicle, which becomes the owner’s responsibility after the warranty has expired.

Other considerations

Owning a vehicle has some other advantages though, like the fact that one can customize and modify it however they wish without breaking contract terms.

Breaking a lease agreement, which can happen in a number of ways, incurs fees. With an owned vehicle, it is simply the property and responsibility of the owner as the vehicle ages, for better or worse.

This story was written for our sponsor, LeithCars.com.