Comprehensive Financial Solutions, Inc.

440-343-4223

Money Read Time: 3 min

Buying vs. Leasing a Car

Some people approach buying a car like they approach marriage, “‘til death do us part.” Others prefer to keep their options open, trading in every few years for the latest make and model, the most cutting-edge technology, or the highest horsepower. Whichever describes you best, we all face a similar decision when it comes to acquiring a car: finance, lease, or pay cash.

When shopping for new vehicles, about one-quarter of consumers choose to lease, while the majority choose to finance. From an investment perspective, which choice is best? That depends on your lifestyle, cash flow, and personal preferences.1

Buying vs. Leasing a Car

For many, paying cash for a car is the simplest way to get one. When you drive off the lot, you own the vehicle outright and are free to do whatever you want with it. You face no penalties or mileage restrictions, and you have no monthly payments. However, you have paid cash for a vehicle that is expected to depreciate over time.

Financing a new car requires a smaller initial outlay of money, usually 20% or more of the vehicle’s value, in the form of a down payment. When you drive off the lot, the bank owns the car, not you. As with most loans, you make monthly payments of principal and interest with the promise of eventual ownership. The amount of your payment depends on a variety of factors, including the value of the car, the length of the loan, and the interest rate offered by the lender. Car dealers sometimes will offer “no money down” or low annual percentage rate loans, which can make financing more manageable.2

If you like to have a new car every few years, leasing is an approach to consider. Leasing a car is like renting an apartment. You pay a monthly fee to use the car for a specific amount of time, usually two to three years. Monthly payments are typically lower than when you finance, since you are paying for the depreciation on the car while you drive it. In certain situations, lease payments may also have tax considerations. However, there are caveats to leasing. For one, a lease typically stipulates the number of miles you are permitted to drive during the course of the lease. At the end of your lease, you may face penalties if you have exceeded the total number of miles in the contract.3,4

Whatever your relationship with your car, it may eventually come time for a new one. Familiarize yourself with your options. You may find that changing your strategy makes sense in light of your lifestyle or financial situation.

1. Experian.com, 2020
2. Investopedia.com, 2021
3. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.
4. Bankrate.com, 2021

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.

Share |
 

Related Content

Retiring the 4% Rule

Retiring the 4% Rule

A portfolio created with your long-term objectives in mind is crucial as you pursue your dream retirement.

How the Federal Reserve Works

How the Federal Reserve Works

Each day, the Fed is behind the scenes supporting the economy and providing services to the U.S. financial system.

A Penny Saved is Two Pennies Earned

A Penny Saved is Two Pennies Earned

Here are some simple and inexpensive energy-saving tips that may help you save money.

 

Have A Question About This Topic?







Thank you! Oops!

Countdown to College

Preparing for college means setting goals, staying focused, and tackling a few key milestones along the way.

The A, B, C, & D of Medicare

Learn about all the parts of Medicare with this informative and enjoyable article.

A Cheat Sheet for Sending Your Kid to College

Dropping off your son or daughter is loaded with emotions; here are a few tips for a smoother experience.

View all articles

What Is My Life Expectancy?

Estimate how many years you may need retirement assets or how long to provide income to a surviving spouse or children.

Impact of Taxes and Inflation

Estimate the potential impact taxes and inflation can have on the purchasing power of an investment.

How Compound Interest Works

Use this calculator to better see the potential impact of compound interest on an asset.

View all calculators

Long-Term-Care Protection Strategies

The chances of needing long-term care, its cost, and strategies for covering that cost.

Investment Strategies for Retirement

Investment tools and strategies that can enable you to pursue your retirement goals.

Protecting Those Who Matter Most

The importance of life insurance, how it works, and how much coverage you need.

View all presentations

Charitable Giving: Smart from the Heart

Do you have causes that you want to support with donations?

Investments

You’ve made investments your whole life. Work with us to help make the most of them.

What to Do When You Lose Your Wallet

Ever lost your wallet? Frustrating. Here’s what you can do to keep yourself safe.

View all videos