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Ready for a new car? If so, you’re likely asking yourself what type of car you want, whether to upgrade to a larger ride and which color you prefer.
But here’s another question: Should you buy or lease?
Leasing typically has lower monthly payments than buying, which is its greatest appeal. But your monthly payment isn’t the only amount to consider.
To get the best deal — and keep the most money in your pocket — calculate the actual cost overall for both buying and leasing.
Here’s an example: Say you find a car with a $30,000 purchase price. You finance the purchase at 3% for 36 months with a $1,000 cash down payment. Assuming you don’t have a trade-in, your monthly payment would be $872 and you’d pay $31,392 overall.
Let’s see what happens when you lease the same car for 36 months with $1,000 down. Assuming a monthly payment of $500, you’d pay $19,000 overall.
In 36 months, you decide you don’t want the car anymore. If you financed, you could sell the car for its current value – say, $18,000. So owning the car for three years has now cost you only $13,392.
If you leased it, you can’t sell it, so your total is still at $19,000 — thus making it much less expensive to purchase the car.
This is a simple example that doesn’t take into account several other factors, including sales tax and the upfront fee to lease the car. To do the math for your specific situation, try several online calculators, such as Edmunds.com’s auto loan and auto lease calculator.
Whether you buy or lease a new car, a warranty likely covers it for at least the first three years. Older cars become more expensive to repair over time as major parts wear out. The person leasing a car (or the person who buys a new car every three years) won’t have to worry about those types of expenses.
However, you will be required to keep the leased car in pristine condition. Any dings or dents beyond normal wear and tear will cost you extra when you turn the car in. Consider having them repaired before that deadline.
Leasing comes with some higher out-of-pocket costs and some potential fees:
Despite the drawbacks, leasing may be your better option if you:
Things to be aware of when negotiating a lease include:
Karen Datko contributed to this post. This post originally appeared on Money Talks News.
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