Lease or buy?
These days, leasing a vehicle is very popular. This is understandable for several reasons: the initial deposit is usually low or even non-existent, monthly financing installments are more often lower than a conventional loan, and sales taxes are spread over the term of lease. These factors combined permit consumers to obtain a car of superior value without spending too much.
However, since nothing is ever free, under a leasing arrangement the car's residual or buy back value is usually high. At the end of the lease, it becomes less reasonable to pay the buy-back amount for the car given its depreciation in value. Logic usually dictates we return the vehicle to the leasing enterprise and begin the whole leasing process again.
It is for these reasons that it is crucial to consider the total value of the vehicle at the beginning of the lease, remain aware of the residual value at the end of the contract and compare these amounts with the monthly payments.
Leasing has many advantages, but you have to do your math before signing anything. Moreover, to avoid being penalized, it is essential to respect the mileage limitations imposed on the driver in the contract. Otherwise, unwanted surprises may pop up.
Many buyers only calculate the vehicle cost on their monthly payments. However, to have a clearer idea of the total cost, the interest fees have to be taken in account. For example, for a $20,000 vehicle with 36 monthly payments, it costs between $4,500 and $6,000 in financing charges, depending the loan's interest rate. These fees must be added to the vehicle's total cost as this applies to a lease, which is just another financing method.
Not doing your research prior to visit the care dealer may result in making a wrong decision and regretting it for the duration of the lease. It is wiser to fix a total budget before beginning the purchasing process. It will then be easier to refuse an offer that is not affordable by those standards, even if such offer seems exceptional.
Finally, with the "pay per month" philosophy, you can end up paying too much. This creates a high opportunity cost, as there may be other purchases you may have to give up. A smart shopper knows what to take into consideration before making a purchase.