Finance Guide Center - Leasing or Buying a new car?

Leasing or Buying a new car?

I do not have the best credit record. Would I have a better chance of buying a used car or leasing a new one? With a lease you put more down and have lower payments. When buying you have higher payments and own the car. I am starting school soon and need a RELIABLE car for the next few years, and I believe I would be better off leasing, but with not so good credit, would I even qualify for a lease? I have been approved for a $10K used car but I have not looked into leasing yet.

Public Comments

leasing is a better option cause you can change cars in a few years if finances are ok then.
Leasing is a lot like renting. You don't have much at all to show for all the money you spent. BUY!
Unless you have good to excellent credit, Leasing is not really the best way to go....and whether you buy or lease really has nothing to do with down paymnet, as much as how your credit situation is and the car that you are interested in getting. Buying a car, especially in the price range you are talking about, will chances are be the best route for you to go. Once you get that one paid off, get out of school, and have yourself established, then you can look at a lease with whatever your situation is at that time. Chris
I don't like leasing. You have to maintain the car, (such as oil changes, etc.) pay your own insurance, buy your plates, and they tell you how many miles you are ALLOWED to put on it. I think it's a suckers bet. And you never own it. And the penalty is costly if you get tired of it and want to get a new one before the lease is up.
Whether you are to buy or lease a car, good credits will get you better terms. If you don't have the best credit, still I'd still shop around to see who can give you the best rate. Don't rely on the dealers lenders 'coz most of the time they do receive kickbacks from the bank. Yet again, if the dealers currently have any special rate advertised, you should definitely check it out. The bottom line, go to different banks to check for rates and terms as well as check dealer's advertise rates, if you want to buy. Also, print out your own credit score, don't let everyone of them run your credits or it will be affected adversely. Lease or Buy. Depends on what you are looking for. If you want a reliable car that gets you from point A to point B, then you should probably buy one for the fact that you will incline to find a more dependable car, Ex. $10,000 for used civic, corolla, accord, camry, etc. However, if you want to buy an eye catching car, then, lease a new one, Ex. BMW 3 series. I love BMWs but I can't afford to repair it as it has a reputation of breaking down. With lease, call maintenance should be covered. Bottom line, it depends on what the major intention of getting the car is, and how your financial picture is going to be. If You are a student and don't know where the future sets for you, get a reliable used car. If you are in some promising program or have a good job, just want to look fabulous, get a hot lease car.
Generally, leasing requires a little better credit than buying with a loan. But there are some other important differences as well. See the following: How is car leasing different from car buying with a loan? MONTHLY PAYMENTS > Leasing - Monthly lease payments are roughly 30%-50% less than loan payments for the same car, same term because you only pay for the vehicle's predicted depreciated value, not the entire value. The average vehicle will depreciate approximately 50% in three years. > Buying - Monthly loan payments are higher because you pay for the entire cost of the vehicle, which includes the depreciated value. The average vehicle will depreciate approximately 50% in three years. PAYMENT DUE DATE > Leasing - Payments are due at the beginning of the month. Your first lease payment is due at the time you sign your lease contract. > Buying - Payments are due at the end of the month. Your first payment is due one month after you sign your loan contract. DOWN PAYMENT > Leasing - Leasing does not require a down payment ("cap cost reduction"). However, some special lease deals may require a down payment in order to get the deal. Making a down payment lowers the monthly payment. > Buying - Buying with a loan usually requires a down payment, as much as 20%. Making a down payment lowers the monthly payment. UP-FRONT COSTS > Leasing - Typically includes: down payment (if any), first month's payment, taxes, registration fees, and possibly a security deposit. > Buying - Typically includes: down payment, taxes, and registration fees. No security deposit is required. SALES TAX > Leasing - Sales tax is based on and paid with monthly payments (in most states), instead of all up front on the entire value of the vehicle. This saves money for the leasing customer. > Buying - Customers pay sales tax on the entire purchase cost of the vehicle up front, but is usually rolled into the loan as an extra cost. If the customer sells the vehicle later, there is no partial sales tax refund. If he trades, there may be a tax refund -- in some states. SECURITY DEPOSIT > Leasing - Leases sometime require a security deposit, which is returned at lease-end. The amount of the deposit is typically about the same as one month's payment. Customers with good credit often don't have to leave a security deposit. > Buying - Security deposits are not required, although down payments are usually required, unlike leasing. OWNERSHIP > Leasing - Since leasing is designed to only pay for depreciation (with lower payments), you don't build ownership equity. You return the vehicle to the lease company at lease-end, or purchase your vehicle for it's depreciated value. > Buying - By making higher payments, you not only pay for depreciation but also build up ownership equity. At the end of your loan, you receive the title and own the vehicle. It's value, however, has depreciated and your ownership equity is significantly reduced. INSURANCE > Leasing - Laws in most states require you to have insurance. Lease companies require that you pay for insurance on your leased vehicle. The level of required coverage may be higher than is required by state laws. > Buying - Laws in most states require you to have insurance. Loan companies may require you to have a minimum level of insurance to protect their interest in the vehicle. The level of required coverage may be higher than is required by state laws. MAINTENANCE > Leasing - Lease companies require that you keep your vehicle in good condition and maintain it properly. You are not required to have your maintenance done by a dealer. > Buying - You are free to maintain, or not maintain, your vehicle as you like. However, if you expect to possibly sell or trade your vehicle in the future, the buyer may be interested in how the vehicle was maintained. GAP INSURANCE > Leasing - Most leases come with automatic GAP coverage, or a waiver, that pays off your lease if your car is stolen or totaled in an accident. It makes up the difference (gap) between what your insurance pays and the amount still owed on the lease. > Buying - Loans do not come with GAP insurance. It must be purchased separately. If you will be upside down on your loan, which is very common, and should have GAP insurance to protect yourself in case of insurance shortfall if your car is stolen or totaled. EARLY TERMINATION > Leasing - The cost of early lease termination can be expensive due to the fact that your low monthly payments do not keep up with the rapid depeciation of your vehicle. You nearly always owe more on the lease than the vehicle is worth, until near the end. > Buying - Ending a loan early by selling or trading can be expensive because payments may not have kept up with the rapid depreciation of your vehicle. You may be upside down, which means your still owe more on your loan than the vehicle is worth. This can happen if you rolled another loan balance into your current loan, made little or no down payment, or have a long-term loan. END OF TERM > Leasing - You can return your vehicle to the lease company, or purchase it for the price specified in your lease contract. Some fees may apply (see below). > Buying - You own the vehicle and may choose to 1) keep driving it, 2) sell it for its depreciated retail value, or 3) trade it for its depreciated wholesale value. No fees are required at end of loan. END CHARGES > Leasing - Most leases require a "disposition" fee at lease-end as a kind of administrative fee for handling the return of the vehicle. The amount is typically about $350. The fee is not required, usually, if you choose to buy the vehicle at lease-end. > Buying - There are no fees or charges at the end of loan. MILEAGE FEES > Leasing - Typical leases allow 10,000 to 15,000 miles per year. Additional miles may be purchased up front. Excess miles are charged at a rate of 15-25 cents per mile to compensate the lease company for the extra depreciation. > Buying - Since you will own your vehicle at the end of your loan, any extra depreciation caused by high mileage is reflected in reduced resale or trade value for your vehicle. Miles aren't free, regardless of whether you buy or lease. WEAR AND TEAR FEES > Leasing - If you have damages or excessive wear and tear at lease-end, you will be charged by the lease company for the repairs to restore the car to a good resellable condition. It's better and less expensive to have the damages repaired yourself before returning your vehicle to the lease company. > Buying - Since you will own your vehicle at the end of your loan, any extra depreciation caused by damages or excessive wear and tear are reflected in a reduced resale or trade value for your vehicle. DEALER PROFIT > Leasing - Dealer profit comes primarily from the negotiated sale price of a vehicle. Many customers don't realize that lease prices can be negotiated and therefore give the dealer more profit than necessary. > Buying - Most customers know that prices can be negotiated when buying, but often don't. Fundamentally, buying and leasing offer a dealer the same profit potential. BUSINESS / PERSONAL USE > Leasing - Leasing offers similar benefits for both personal and business vehicle use. Business users can deduct lease expenses from taxes. Personal users cannot deduct. > Buying - Buying is not as convenient for business users, who can deduct vehicle expenses, but not quite as easily as with leasing. Personal users cannot deduct. FINANCING SOURCE > Leasing - Dealers don't finance leases. They hand off lease financing to the manufacturer's finance company (Ford Motor Credit, GMAC, etc.) or a national bank. The finance company pays the dealer for the car and works out payment details with the customer. Independent lease sources are difficult to find. > Buying - Dealers don't finance loans. They hand off loan financing to the manufacturer's finance company (Ford Motor Credit, GMAC, etc.) or a national bank. The finance company pays the dealer for the car and works out payment details with the customer. Independent loan sources are easy to find. INTEREST RATES > Leasing - Interest rates are about the same as for loans, and depend on your credit score. Lease rate is called "money factor" and can be converted to APR by multiplying lease rate by 2400. > Buying - Interest rates are about the same as for leases, and depend on your credit score. CREDIT REQUIREMENTS > Leasing - Requires you have a good credit score, income, and reasonable debt. Lower credit scores will require a higher lease rate, and possibly a down payment and security deposit. > Buying - Requires you have a good credit score, income, and reasonable debt. Lower credit scores will require a higher interest rate and higher down payment. FINANCE COSTS > Leasing - Total finance charges are usually higher for a lease than for a purchase with a loan. Low payments are slow at paying down the lease. > Buying - Total finance charges are usually lower for a loan, assuming the same term. However, most loans have longer terms (in months) than most leases, which evens out total cost. CALCULATING MONTHLY PAYMENTS > Leasing - You can use an online lease calculator such as the one at LeaseGuide.com/calc.htm > Buying - You can use an online loan calculator such as the one at AutoLoanCalculatorOnline.com