Leasing Your Car: Good Or Bad Idea?

Buying a vehicle with a car loan is pretty straightforward. You borrow money from a lender and make monthly payments for a certain number of years. You pay both interest and principle. When you paid off the entire loan, the car is all yours. Recently, however, leading a car has become more mainstream – but is it right for you? Let’s look at why it’s good, and why it’s bad.

Why it may be good for you

Many people find it appealing to lease because monthly payments are usually lower because you’re not paying back principal. Here are some advantages to leasing a car:

• You can drive a higher-priced and better equipped car that you may otherwise be able to afford.
• You drive the car during it’s most trouble free years.
• It’s usually covered by manufacturers warranty, which can include free oil changed, and other scheduled maintenance.
• You don’t have to go through the hassle of selling the car when it’s time to move on.
• When you’re done with your lease, you just drop off the car at the dealer.

Why it may be bad for you

While leasing may seem attractive, there are some disadvantages:

• When you drive a depreciating asset, you are spending more than if you took out a loan for a vehicle that you will later own.
• If you keep leasing, you will always have a monthly payment. Long term, the cheapest way to drive is to buy a car and keep it until the wheels fall off.
• Leasing a car means you can only drive it a specific amount of miles. If you go over that milage, you’ll have to pay an excess mileage penalty. There is no credit for unused miles.
• If you don’t keep the car in good condition, you will have to pay excess wear and tear charges when you return it. If you aren’t prepared to pay extra, then leasing might not be a good option for you.

Bottom line

If you are wanting to drive a new car every couple of years, taking out a long-term loan and trading it in early is a sure way to have paid so much more in finance charges compared with principal you’d pay with leasing. If you’re looking for low monthly payments and to drive a new car every few years with little hassle, leasing might be a good idea for you.

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