Should I Buy or Should I Lease

Woman shaking mans hand over a car contract clipboard with car keys

When you need a new car, primarily due to unforeseen circumstances, one of the first questions you may have for our finance department is, ”Should I Buy or Should I Lease?” Leasing vs. Buying is an excellent question and one that has multi-faceted answers. Currently, a large portion of the workforce is working remotely. This means much less commuting from Old Saybrook to Clinton, which means you would have an easier time staying within the mileage limit and avoiding the wear and tear penalty.  Having ownership and an extended warranty is also attractive to many people in these less than certain times. So, the pros and cons of leasing or buying have changed in the past year. Read ahead to learn more about what leasing a car entails and the pros and cons of leasing vs. ownership. If you have any questions, please reach out to our finance team for more information and guidance.

Leasing vs.Buying: Leasing Terms Defined

In layman’s terms, leasing means this: leasing = renting. In essence, when you lease a car, you are renting it from the dealership. It is in your best interest to understand what the leasing terms mean so you do not sign something you misunderstood. Here are some of the words you may hear when leasing:

  1. You can lease a used car, but it makes sense to consider financing a Certified Pre-Owned (CPO) vehicle instead.
  2. Open-End vs. Closed-End Leases: An open-end lease is a lease agreement that provides an extra payment when the lease expires to adjust for any change in the property’s value. A closed-end lease is a vehicle rental agreement that puts zero obligation on the lessee (the party responsible for periodic lease payments) to purchase the leased asset at the end of the contract.
  3. Capitalized Cost (Cap Cost): It’s the negotiated selling price of the car plus any additional fees you might want to include in the monthly lease payment (such as the acquisition fee).
  4. Capitalized Cost Reduction: A capitalized cost reduction is an upfront payment that reduces the cost of financing. You might pay less with the value of a trade-in vehicle or through rebates.
  5. Residual Value: A car’s residual value is the vehicle’s value at the end of the lease term.
  6. Depreciation: It is the value reduction of the vehicle during the lease period. The depreciation cost is what makes up the most significant part of the lease’s monthly payment amount.
  7. Rent Charge: A “rent charge” or a “Lease Charge” is the sum of all monthly finance fees over your lease’s entire term.
  8. Use Tax: A lease doesn’t incur sales tax on the end cost of the vehicle. Instead, only lease payments are subject to that tax.
  9. Guaranteed Auto Protection (GAP) Coverage: Gap coverage is an agreement by the lender or a third party to cover the gap if your vehicle is stolen or totaled.
  10. Early-Termination Charges: An early termination charge is generally the difference between the amount credited for the vehicle and the remaining balance on the lease. This calculation is a part of the lease.
  11. What happens at the end of my lease: You buy the car or settle the amount and walk away.

Leasing vs. Buying: Pros and Cons

Leasing Pros:

  • You want to drive new cars.
  • You do not want to own a car.
  • You only need a car for a short time.
  • You have a little (or no) down payment at signing.
  • You have warranty coverage providing lower-cost repairs and maintenance.
  • You collectively owe lower sales tax.
  • You can drive a new model car every two to three years.

Leasing Cons: 

  • Your mileage is restricted – generally, no more than 12,000 miles are allowed per year unless you purchase extra.
  • You don’t automatically own your vehicle when the leasing period ends.
  • You pay more over time and don’t own the car.
  • Leasing contracts are often confusing and full of unfamiliar terms.
  • You may unexpectedly face costly wear and tear charges at the end of the lease.
  • If you find you need to terminate your lease unexpectedly, it can be costly.

Buying Pros:

  • You own the car immediately if you paid cash and after the financing period if you took out an auto loan.
  • You can make any modifications to the car that you wish.
  • There are no mileage restrictions.
  • You can sell the car if needed.
  • You can use the car as collateral on a loan.

The Cons of Buying:

  • You have to make an initial higher down payment to avoid owing more than what the car is worth.
  • Monthly car payments are generally higher than monthly lease payments.
  • You are responsible for repairs and maintenance after the car warranty expires.
  • The car depreciates because of the amount of cash you have tied up in the payments.
  • When you decide to buy a new car, you may have to hassle with negotiating a trade-in with your old car.

Explore Your Financing Options at Westbrook Toyota for Your New Car!

If you reside in Old Saybrook, Madison, or Clinton come visit us to view our inventory, and to check out any current leasing incentives. Now that you better understand the difference between leasing vs. buying, you are ready to drive your new vehicle home today!

 

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