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Car Lease vs Purchase: Pros & Cons

Car leasing has been on the mind of almost every person who has ever considered getting a brand new car. Should I or should I not? What is it? How does it work? It is not a secret that many people are simply afraid of the option of car leasing and therefore skip it all along. However, I think many of them are making a mistake worth of thousands of dollars that they could have kept in their pockets. Let me explain.

If you are someone who wants to buy a brand new car, keep it for 2 to 4 years before moving on to the next one, drives 15,000 miles per year or less and has a good credit score you should definitely be leasing your car. I’m also assuming you’re not interested in modifying the heck out of your car to the point where the warranty is voided or the value is compromised. If you are not in the above category, you should absolutely stick to buying or financing.

I’m also excluding those who are buying cars for cash because it is a well accepted fact that doing so is one of the worse investment decisions you ever make for your property so I’m assuming that most of those people are not interested in saving money when buying their cars anyway.

There are two major ways how you save money on leasing:

SALES TAX SAVINGS

When you lease your car you only pay the sales tax on the value that you’ve used which is usually half. That means that you’ll only pay half of the sales tax, while if you’re buying or financing you’ll have to pay the sales tax on a full amount. The savings from this along is worth going the leasing route.

DOWN MARKET SAVINGS

If your car is worth less than the residual amount agreed to when the lease is signed, it’s the bank that will take the loss and you’ll walk away with your money. It’s one of the few times when you get to screw a bank.

There is also such a thing as multiple security deposit lease but it is not offered by all leasing banks. It is an additional arrangement where you can put additional money down as a refundable deposit and in return the leasing bank will lower your interest rate. In this scenario you can save hundreds and sometimes even thousands of dollars. The banks do it to have a security buffer in case if you ever default on your payments. It is worth it to them to give you a better rate knowing that your loan is more secure for them.

Lastly, I want to mention to those who look at the lease as a form of a “rent” – it is not! Ask any person with a mortgage. Even though they don’t own most of their house and the ownership belongs to the bank, every single one of them will tell you that they “own” the house. See, ownerships is a funny thing. Whether you finance or lease your car you’ll end up going through the same scenario either way: you buy a new car, you use it for your needs and then you let someone else take it over. The difference between leasing that car and financing it is the financial arrangement which favors you in the case of lease.

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