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Those who are looking to purchase a vehicle often debate whether or not they should lease it or buy it. Unfortunately, many people aren’t knowledgeable enough about the advantages and disadvantages that both can offer to make an educated decision. The following are the general issues that will allow you to decide on which one to do:
In general, leasing is the better option for those who want to claim their vehicle as being a business expense. That’s because of the fact that all of the leasing expenses that one has due to business-related use can be deducted from one’s taxes. It will help to make sure that you have a tax advisor to help you out with this.
Your Financial Health and Monthly Budget
Leasing a car is better for those with a more limited budget since your monthly payments will be less than if you were to purchase a vehicle. However, a lease contract is binding, which means you can’t break it. If you do, you’ll have to pay an early termination fee, as well as most likely have to pay the remainder of the lease anyway, or at least a significant portion of it.
You will need to make sure that you’ll be able to pay the monthly payments on time. If you do want to end your lease early, there is the possibility of transferring it to someone.
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Your Credit Score Matters
Having a poor credit score will be worse for you if you decide to lease rather than buy a car. In addition, some car dealerships will not lease a vehicle to someone who has poor credit, so you won’t even have this option available. If your credit is low, you will often have to finance a car with high-interest rates.
The Use of the Car
A car lease often comes with requirements on a number of annual miles that you’re allowed. A set number, such as 20,000 miles, can be part of the condition, and if you exceed that many miles, you will usually have to pay a harsh fee. For example, you may be charged 25 cents per every mile over the agreed upon amount. That’s why purchasing a vehicle may make more sense if you plan on using your car a great deal.
Whether you buy a car or lease a car, you will have to make sure that your car remains in good condition. If you lease a car, your repair bills will be lower because of the fact that it’ll be under warranty in most instances. However, your car has to be returned at the end of the lease back to the dealer in very good condition. This means that you’ll have to make sure that any dents or scratches, for example, are all fixed by that time. If you purchase a vehicle, you will not be under any obligation to get it fixed, so it’ll be less of a worry. Ultimately, if you generally take good care of your vehicles, the lease is an attractive option. But if you have a family of kids and pets and plan on using your vehicle a lot, there’s a high likelihood that the car will suffer some damage.
Lack of Equity
When the lease ends, you have to return the vehicle. This means that you’re essentially just renting it and don’t have any equity. You’ll have to buy another vehicle or lease another one at this point. While this is good for those who want to have a new car every few years, especially one that is under warranty, you are technically making a financial decision that will be more costly over the long-run.
Many financial advisors say that if you have the means to purchase a vehicle, you would be better off doing so. The truth is, when you purchase a new vehicle, as soon as it leaves the dealership, its value begins to drop. You may be better off purchasing a used car that is in good shape instead and holding onto it for over 5 years. It all comes down to your own personal preferences and lifestyle.