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Janice France-Pettit: Buying vs. leasing a vehicle

Union Bank of California

Posted: July 31, 2010 4:55 a.m.
Updated: July 31, 2010 4:55 a.m.
 

When shopping for a vehicle, the number of choices can be overwhelming, including the selection of models and features, whether to buy new or used and whether to buy or lease.

Purchase loans and leases are two different kinds of automobile financing.

A purchase loan finances the purchase of a vehicle, while a lease finances the use of a vehicle. Each has its own advantages and disadvantages, and your decision should be based on your personal priorities and financial situation.

For example, if you enjoy driving a new car every three or so years and the lease payments - which are often lower than purchased loan monthly payments - fit within your budget, you might consider leasing. If you can afford a higher monthly payment and like the idea of being payment-free once the loan is paid off, then perhaps buying is the route to take.

Before you decide whether to purchase or lease your next vehicle, consider a few key differences:


Purchasing
* Monthly loan payments are usually higher than monthly lease payments because the buyer is paying for the entire purchase price of the vehicle, plus interest, taxes and fees.

* The long-term cost of buying is lower than the long-term cost of leasing, assuming you keep the vehicle for a number of years after the loan has been paid.

* There is no limit to how many miles you may drive the vehicle, but keep in mind that, in general, higher mileage and wear-and-tear will lower the vehicle's trade-in or resale value.

* Once the warranty has expired, the owner is usually responsible for repair and other maintenance costs.

* When the owner decides to purchase a different vehicle, the vehicle usually has some trade-in or resale value.


Leasing
* Monthly payments are generally lower because the lessee is paying only for the vehicle's depreciation during the lease term. Also, there is no interest cost associated with borrowed money.

* You will typically need to pay upfront costs, such as the first month's car payment, a refundable security deposit, taxes, registration and possibly a down payment.

* If you lease for the length of the manufacturer's warranty, you may not have to pay for major repairs, but with most leases, you will pay for general maintenance.

* Most car leases limit the number of miles you may drive, often between 10,000 to 15,000 miles per year, and if you exceed the mileage limit, you will likely pay charges of about 15 to 25 cents per mile.

* At the end of the lease, you do not own the vehicle and must pay any end-of-lease costs. There can be penalties for early termination of a lease.

Whether you lease or buy, be sure to pay close attention to the fine print before you sign any agreements. When choosing a lease, determine whether you will be obligated to absorb the cost if, at the end of the lease, the car is worth less than the leasing company estimated when you signed your lease.

You may also want to consider whether you have the option to purchase the vehicle at the end of the lease. Many companies will finance the purchase if you are not able to pay the cost in full at that time.

Janice France-Pettit is a senior vice president and regional manager for Union Bank, overseeing the Simi Valley, San Fernando Valley and Antelope Valley regions. Her column reflects her own opinion and not necessarily that of The Signal. The foregoing article is intended to provide general information about retirement planning for businesses and is not considered financial or tax advice from Union Bank. Please consult your financial or tax advisor.

 

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