How to choose if you should lease or buy a car

Owning your car rather than leasing one comes with added flexibility and lower fees. (Photo: iStock)

This summer is peak selling season, but you shouldn’t wait until summer to consider owning your car. If you wait until fall, leasing your car will look like a better deal — and they’ll be hard to find.

Leasing is a convenient way to keep your car when you no longer need it. You can return it early if you decide you no longer need it. Unlike buying a car, you can use miles you’ve added to your car’s overall mileage credit to recoup your initial outlay — as long as the used car you are purchasing will actually go far enough in gas and oil that you won’t have to worry about any fuel budget.

If you lease a car, you also need to consider your intentions. Car companies offer options to fulfill the highest of possible goals. That means one car company might give you more money for a traditional lease than another.

And just because a car company gives you a lower price does not mean your end result is lower than the long-term investment in your car. Lease this car and your monthly payments might be $30 less than you would have to pay if you bought your car outright, but as a final cost, you’ll still be sitting on a car that you don’t need.

Leasing also comes with multiple options to ensure that you get a good deal.

Like other long-term financial decisions, it’s important to evaluate the opportunity cost of different forms of payment when you decide whether to lease or buy.

Retirees are mostly renters in any case, and they shouldn’t be looking for a particular rate. But they are unique in this case as they’re typically dealing with something more tangible than a monthly payment. Rather than a major bank loan, an income-from-work pension, or substantial savings, you have to decide if you should drive long distances or make travel reservations with more time than that involved.

How much should you lease for?

You need to first determine how much you’re willing to spend each month. So before you check the monthly lease price, you should first consider your financial commitment. (Do you expect to own the car by the time you want to retire?)

The monthly price of your car is a good indication of how much you can afford over a set period. If you bought a car right now, it would probably cost between $1,300 and $1,600 a month. But if you’ve had money to invest for a decade, you might have money to pay for your car in a couple of years. You should always consider your own circumstances before you apply, but this method will give you a more accurate indicator of how much you’ll actually have.

Here are some other things to consider.

Typically, the first year of the car lease is paid in cash up front, with the residual value percentage calculated later. The residual value percentage is what you will receive when you exit the lease and sell the car after a few years. At the end of the lease, you’ll receive the amount above that residual. These amounts, called residuals, will vary depending on the car you lease, and also on a couple of different factors, such as the age of the car or the brand of car you buy.

Depending on how long you’re leasing, you could also receive a “surcharge” of between five and nine percent of the total amount you’re leasing. The “surcharge” represents the difference between what you are paying for your monthly payment and what the car company would be willing to pay for your car. In some cases, you may even be able to claim a tax deduction for this difference. And some car companies also offer additional programs for families who are considering buying a car with a hybrid engine.

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