How to Save Money on Your Next Car Deal
Should You Lease or Buy Your Car?
Whether leasing or buying your next car suits you better depends on your personal needs and financial situation. However, consumer and personal finance experts generally agree, as Jack Gillis, author of The Car Book 2005, says, that "from a purely economic standpoint, it's always better if you buy." Paying cash down in full gets you the best deal of all, since you avoid interest charges, but even taking a car loan is better in the long term for your bottom line than a car lease.
Why? In the short term, a lease may seem like a good deal because monthly lease payments will almost always be lower than monthly loan payments. That's because the sum of your loan payments covers the entire price of the new car, while the sum of your lease payments covers only the price of the car for the time you lease it, typically 24, 36, or 48 months. When you buy, you still have the car after you've paid it off and can either sell it, allowing you to recoup some money toward your next car, or continue to drive it. Once your lease is done, of course, you have nothing to show for your investment.
For some drivers, though, the decision isn't just about the bottom line. People who prefer leasing like the fact that they can drive a new car every few years and turn it in before regular repairs start getting expensive or time-consuming. They're also assured of having the latest in comfort, style, safety, and fuel efficiency. If those are your priorities, leasing may indeed be the most desirable option. However, there are restrictions built into leasing, which may be deal killers for some. For one, leasing companies limit your mileage, usually to between 10,000 and 15,000 miles per year. If you exceed your mileage allowance, you'll pay a fee, typically anywhere from 15 to 30 cents a mile, depending on your contract. If you plan ahead, you can often negotiate your mileage allowance at lease time. Sometimes you can even pay for additional miles up front, but you won't get a refund for any miles you pay for and don't use.
Another point to consider as a potential leaser is how much damage you're likely to inflict on your automobile. If you tend to get into fender benders or if your two hyperactive Labs are frequent passengers, leasing may prove costly. When you return the car, the leasing company inspects it carefully for dings, scratches, mechanical problems, worn tires, stained upholstery, and any other damage or blemishes, and penalizes you for any problem that exceeds what they consider "normal wear and tear." And even trying to preempt the charges by taking care of repairs in advance is unlikely to save you much. "Whether you're paying a penalty or having damage fixed yourself," says Rob Gentile, associate director for Consumer Reports auto price services, "it can add up to quite a bit."
Finally, if you lease your car, some leasing companies may ask you to carry "gap insurance," says Dan Kummer, director of auto insurance for the Property Casualty Insurers Association of America. For much of the duration of a lease (or a loan with no down payment, for that matter) you'll owe more on the car than it is actually worth. But if your car gets totaled in a wreck or stolen, regular car insurance only reimburses you for the car's actual value, not for what you owe. Gap insurance policies protect you by covering the difference.
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