Millennial Money Myths: Buying a Car is Better Than Leasing
During difficult economic times, it is even more critical to be smart about where you spend your money. And it is essential to do your homework so you can make informed decisions for a better chance of keeping your finances worry-free. One of the first steps to protect your financial future is to know which money myths can take you off track.
One major budget line item can be your transportation. You must’ve heard your dad say buying is the way to go. Was he right? To buy or not to buy (aka lease), that is the question.
Leasing Goes Mainstream
The rental market has skyrocketed in recent years, for both millennials and beyond—from cell phones to sofas to cocktail dresses. This can help you save money, experiment with what you like (with no long-term commitment), and more. But when it comes to a new vehicle, is this trend right for you?
“The typical math is that buying is better, but this may not always be the case depending on the situation. Leasing a car can be appealing as payments are typically less than the monthly payments for ownership of the same vehicle, often with more equipment,” says Christine Smith, Financial Representative with Wealth Advisory Group, a financial services firm in Latham, New York. You may also have the other following benefits:
- You may be able to change cars more often, so you can go from a car to a truck. In some cases, you can also change manufacturers.
- You pay for mileage upfront. There is usually a mileage cap of 10-15K, but some manufacturers allow high mileage leases up to 20k miles per year. On the flip side, if you go over your mileage you may need to pay 10-25 cents per mile.1 You may not be able to drive on your terms, like you would if you purchased a car.
- You may not always have to wait until the end of your lease to get out. This is especially important if you are on pace to go over on mileage.
- Many dealers and manufacturers offer complimentary oil changes during part or all of the lease.
- If the dealer buys your car off lease in order to put it on their lot, you may not have to worry about mileage overage or damage fees in most cases.
- You have the option to buy out your lease in the end. This may be an option to consider if you have a teen in the house. What better used car than yours?
- You can turn it in at the end of your lease and walk away! You don’t have to purchase from the same dealer or manufacturer.
- Safety and technology features change every few years, and leasing allows for you to have the most up-to-date vehicle.
- Down payments are not always required, unless you do not have good credit. For every $1000 you do put down on a lease it could change your payment by $40/month.2 On the other hand, if you buy car, you may have a bigger down payment but may be able to take advantage of 0% interest offers on an auto loan from the manufacturer.
- Since the average lease is 36 months,3 you’ll also likely be covered by a manufacturer warranty during your lease term, meaning you won’t get hit with an unexpected wear and tear repair bill.
Weigh Your Options Well
Ultimately, it comes down to what works best for you. If you are still unsure, ask yourself these 5 questions.
- How much monthly payment can you afford?
- How much do you drive each year? Do you have a safe record and keep cars well maintained?
- What’s the residual value of the car you want to lease? Can you afford to buy it when the lease is over?
- How frequently do you want a new car?
- Which of these statements describes you better? (a) “There’s nothing like the feeling of driving into the sunset in a brand-new ride.” OR (b) “It is about forming an emotional connection to the car and owning an asset.”
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2020-100986 Exp 6/2022