By Robyn A. Friedman
City & Shore Magazine
It’s that time of year: the post-holiday blues for auto dealers. It’s a slow period for the industry when dealers will do just about anything to get a customer in the door.
If you’re in the market for a new or pre-owned vehicle, you’ll soon have to decide whether to buy or lease it. It’s not a simple question – and the answer depends on your planned use of the vehicle, as well as your financial situation.
The decision also requires some understanding of lease terms, such as residual value. Here are some questions to ask yourself that may help make your decision easier.
How long do you plan to keep the vehicle?
According to Michael Silver, a certified financial planner in Boca Raton, the answer to this question is key. “If you like the look and feel of a new car and tend to change cars often, a lease may be your best option,” he says. “If you don’t like the hassle of changing cars and tend to keep a car for five or more years, you may want to own the car.”
How much do you plan to drive the car?
Is the car your primary vehicle, or is it just a sportster you plan to show off on weekends? Remember that leases restrict the number of miles you can put on the car each year. If you go over your allocated mileage, you’ll have to pay for it – and that can be costly. If you plan to drive the car a lot, owning might be a better idea.
How much do you want to pay?
Because you’re only paying for your actual usage of the vehicle, leases allow consumers to afford a larger or more expensive car than they would if they purchased it outright. “It may be less expensive in the short term to lease,” Silver says. “But over longer periods of time, you are generally better off owning the car. At the end of a lease, there is no equity in your car, but with ownership you will have a value to your car.”
That means that if you buy, you’ll have a vehicle to trade when you’re ready for a new car. With a lease, however, you’ll turn in the car at the end of the term and be left with nothing.
Do you like having the latest and greatest features?
Vehicle manufacturers are constantly innovating, improving safety and technological gadgets in their new models. If you must have the latest features, leasing may be a better option because it allows you to trade up every two years. Of course, those who own a car outright can also opt for a new model that frequently, but due to the depreciation – the value of a new vehicle can drop by more than 20 percent after the first 12 months of ownership, according to car research company Carfax – that may not make sense financially.
Silver recently went through this analysis himself and decided to purchase, rather than lease, his car. However, he bought a two-year-old certified pre-owned car with low mileage and a warranty –
and he saved 45 percent off the retail cost of the car. “I figured out my break-even point between leasing and owning, and it was approximately three years,” he says. “Since I tend to keep cars for long periods of time and I’m not into the latest gadgets, this was the right decision for me. But everyone is different.”