Auto Leasing vs. Purchasing

When you need a new car, you need a new car loan, right? Not necessarily. It may be smarter to lease your next new automobile than to purchase it. How can you know if leasing may be right for you? You can start by asking yourself these few simple questions.

How Long Will I Drive This Particular Car?

If you are looking to drive a car for just a few years, leasing may be your best bet. People who require a newer or nicer car for industry or image reasons often trade-up cars every two or three years, making a 24–36 month lease cycle a perfect fit for their needs. Dealers often offer nice incentives to returning lease customers, as well, making leasing an advantageous choice for folks staying with the same auto manufacturer for subsequent auto leases.

How Many Miles Will I Be Driving?

Almost all lease options have mileage restrictions. If you are looking for a car to drive regular, limited distances?say a regular commute to your jobsite—leasing a vehicle could make good sense. Exceeding the mileage limits on your lease agreement can cost you as much as $0.25 for each mile you go over. So if you drive a lot of unplanned distances often, leasing may not be the best option to fit your driving needs.

Do I Have Money To Put Down?

While traditional auto loans often require no money down on the initial purchase of a new vehicle, lease agreements usually require a security deposit and other lease fees upfront. While you pay more upfront for a leased vehicle, monthly payments on a lease are usually lower than monthly payments on an auto loan, and leasing can put nicer cars within the financial reach of consumers who could not afford as much car if they were looking to purchase. If you have the money to pay upfront, leasing can be a smart way to go.

Can I Take Good Care of The Car?

Leased cars need to be returned to the dealer after the lease agreement expires. It's important to keep your leased car in good condition because you can be charged penalties if you don't keep the car up to par with the lease agreement standards. Keeping up with regularly scheduled maintenance, like oil changes and tire service, will keep you from getting dinged when it comes time to return your car.

If Leasing May be Right For You

If you're now thinking that leasing may be right for you, here are a few things to keep in mind.

All lease agreements are not the same. Just as you would shop around for auto loans, shopping for the best lease agreement is a smart thing to do. Lease agreements can vary wildly from dealer to dealer. Shop around to find the best deal for your needs, including ideal mileage limits, monthly payment amounts and vehicle options.

Lease agreements are not written in stone, initially. You don't have to accept any lease agreement as it's first presented to you. You can try to negotiate for lower monthly payments or higher mileage limits. Dealers may choose to adjust the terms to guarantee a lease agreement. It is important to remember that any lease agreement or dealer promise should be in writing. A final lease agreement, once signed, is a binding contract. Both you and the dealer will be bound to the final agreement.

Your past credit history may not be relevant in your initial negotiation. When you are initially negotiating the terms of your lease agreement, it may not be necessary to allow a check on your credit report. While a credit check will probably be necessary before the lease agreement is signed, an early credit check allows the dealer to discriminate against you and deny you the best deal available. It's wisest to first agree on payments, options and extras before allowing the dealer to check your credit. This may not only help prevent a potential negotiation imbalance, but delaying your credit check may prevent unnecessary hits on your credit which may adversely affect your credit score if you decide not to enter into a lease agreement at the time.

A lease agreement can be a great tool in rebuilding your credit. A lease agreement may be a lower risk option for a dealer to offer a driver with a less than perfect credit history. It may be easier to obtain a leased vehicle than to obtain an auto loan, making a lease agreement a potentially valuable way to rebuild shaky credit. Entering into and faithfully fulfilling your end of a lease agreement may be reflected on your credit report, boosting your future credit score and proving you to be a responsible credit holder.

Leasing your next ride can be a smart alternative to purchasing a vehicle through a conventional auto loan. Asking the right questions and finding the right lease agreement for you can keep you on the road and on your way to a better financial future.