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Buy Or Lease A New Car...What Is The Best Financial Decision?
November 1, 2017
There is a quite a bit of debate of which one is better buying or leasing a car.
If you want to make the best financial decision, then you should save enough money to buy a used car and drive it as long as possible.
However, if you feel like only a new car will do, you need to review the pros and cons to both buying and leasing and determine which option works best for you.
Now, there are many perks to leasing a new car. The main advantage is that you get drive a brand new car for a significantly smaller monthly payment than when take out a loan to buy a new car. In addition, in two or three years, you can choose to buyout the lease and keep the car or trade it in for another new one.
Many experts believe that leasing a car always costs more in the long run. Therefore, you should never lease a car.
But is that always the case?
When you buy a car and drive it off the lot, it’s depreciating. This is an asset that loses value. If you lease the vehicle you’re paying for the depreciation of the car during the term of the lease rather than the whole vehicle cost.
In addition, when you lease a car that drive for business, a portion of the car’s depreciation and financing costs can be deducted on your taxes. Interest on loans to buy a car aren’t deductible. The IRS has a guide for how to calculate the tax deduction for a leased car. You may need to seek a tax advisor for assistance since there are a lot of calculations based on your business percent use of the car, how much the car costs, and additional expenses related to the car, such as gas and maintenance. This can be an advantage of leasing a vehicle especially if you need a business deduction.
A lease can be very enticing if you want to drive a new car, but need access to more cash every month. You should also consider leasing if there’s a good chance you won’t keep the car for five years or more.
Even with these incentives to lease a car, most experts still believe a new car is a better financial decision than a lease. Many believe that car leases are a luxury and you will pay extra for that luxury.
The only way leasing is is a better option than buying a brand new car is if you trade you new car purchase in too soon.
When leasing a car, you do not own anything. In fact, when your lease is up, you will need to get another lease or opt to buy the car which means you’ll always have a monthly payment. Although cars depreciate if you purchase a new car and keep it long enough, you can save more money than leasing and still have something of value that you can sell.
Another advantage of buying your car versus leasing a vehicle is that there is no limit to the amount of miles you can drive. Most car leases charge per mile over a set cap usually between 12,000 to 15,000 miles per year which often forces the lessee to purchase the vehicle to avoid hefty penalties.
When it doubt, buy, don’t lease, your next car.
Keep in mind that new cars are never a good financial move.
Your best financial decision would be to purchase a used car. If your heart is set on a new car, you next best option is to purchase a new car that you intend on driving for at 10 years.