You’ve made the decision to replace your car, or maybe acquire your very first one. You’ve gone the next step and determined your budget, your needs and the use you’re going to make of your vehicle. You’ve made the decision to go for a new model and not pre-owned. You’ve even narrowed down the possibilities to a few models that meet your approval. What’s next? You’ll have to decide whether you should buy or lease!
To help you make that choice, Auto123.com takes a look at the pros and cons of each option.
Buying a car
When you buy, it’s possible to negotiate the price and/or the options you can get. Interest rates are lower than with other options, as is the insurance premium you’re likely to pay. The car you buy is yours, which means that you’re free of any restrictions regarding long road trips outside of the province or the country, you don’t need to worry about raking up the kilometres, and you’re also free to modify it in any way you want. You can hold on to the car for however long you want; often you will keep driving it after you’ve finished paying it off. And, you can recover a part of your investment when you do resell it or trade it in.
On the other hand, you can expect higher monthly payments than when leasing. The biggest drawback, of course, has to do with depreciation. The new car you buy loses up to 30-40% of its initial value the moment you drive it off the lot, and then another 10% every year thereafter. Keep in mind those figures are averages, and that depreciation varies wildly from brand to brand and model to model, and depends as well on the condition of the vehicle.
Leasing a car
One big plus when leasing is that the monthly payment you have to make is usually lower than when buying. What’s more, payment of the taxes can be spread out or reduced. Some choose to save money by making a lower monthly payment, others opt for driving a higher-end car for the same monthly payments they’d make for a more basic model when purchasing. You also have the option of leasing for a shorter period of time, which allows you to change your car more often and drive a more recent vintage at all times. One other benefit worth mentioning is that you generally will have fewer problems to deal with if the vehicle is stolen.
Drawbacks? A leased car costs more to insure because of the cost of refurbishing it after an accident. Leaving the country in a leased vehicle can also be problematic. If you exceed the annual allowance for kilometres driven, you will pay fees for the number of kilometres you go over. The same applies for damages and wear suffered by the car during the lease period; you’re on the hook for those. Lastly, at the end of the lease when you return the vehicle, you own no part of it – you have no equity left at all. You can choose to buy the car outright at the end of your lease, but in those cases you’ll likely end up paying more than the market resale value of the car, and more overall than if you’d chosen the purchase option right at the beginning.
Before buying or leasing any new vehicle, it is recommended that you contact your insurance company to get an idea of the insurance premiums you can expect to pay with each type of contract.