If you are looking at a new car, you may want to
consider the pros and cons of leasing vs. purchasing and
your responsibilities as a consumer.
The federal Consumer Leasing Act
(http://www.federalreserve.gov/pubs/leasing/) will
provide access to information about the costs and terms
of a vehicle lease.
The most common type of vehicle lease is the closed-end
lease whereby you lease a car and after a designated
contractual term, you return it to the dealership, pay
any end-of-lease costs and you have the option to walk
away, purchase the vehicle at its depreciated resale
value or lease a newer vehicle.
When leasing a vehicle, most dealerships include a limit
as to the number of miles you may drive, usually 12,000
to 15,000 miles annually. If you exceed that limit, you
will be charged for excess mileage unless you purchase
the vehicle at the end of the lease term.
With leasing, you will always have a monthly payment.
When purchasing a vehicle, you eventually pay off the
car loan and may not have any car payments for a few
years until you decide to purchase another car.
When leasing a vehicle, be sure to consider the fees and
payments. At the beginning of the lease, you will
probably be required to pay your first monthly payment,
a refundable security deposit on your last monthly
payment, fees for licenses, registration, title, an
acquisition fee, and state or local taxes, if
applicable. If you opt not to purchase the vehicle at
the end of your lease, you may have to pay a charge for
excess miles and excessive wear. And, if you end your
lease early, you may have to pay a substantial early
termination charge.
On the upside, when leasing a vehicle you can negotiate
some of the lease terms such as up-front payments,
length of lease, monthly lease payment, end of lease
fees and allowable mileage. With a lease, you pay for
only a portion of the vehicle’s cost.
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When purchasing a vehicle, you pay
for the entire cost of the vehicle, regardless of how
many miles you drive. Typically, when purchasing a
vehicle, you make a down payment, pay sales taxes or
roll them into your loan, pay registration and title
fees and pay an interest rate determined by your credit
history. A few years after the purchase, you can decide
whether to trade or sell your vehicle at its depreciated
resale value.
While the short-term-costs of leasing are lower than a
traditional car loan, the long-term costs may be more.
If you enjoy driving a new car every two or three years
that is always under warranty, want lower monthly
payments, and like having a car with the latest
technology and safety features, the leasing option may
be best for you.
If you don’t mind a little higher monthly payment, want
resale or trade-in equity, want to be debt-free for a
few years after your loan is paid off, willing to pay
for repair costs and drive more than 12,000-15,000 miles
per year, then purchasing a car is probably the best
option for you.
For more information on vehicle leasing, contact Federal
Reserve Consumer Help at
www.FederalReserveConsumerHelp.gov or the Federal Trade
Commission at www.ftc.gov.
CONSUMER TIPS is provided as a public
service by the Missouri Independent Bankers Association
AND
Community Bank of the Ozarks
P.O. Box 43
Sunrise Beach, MO 65079
(573) 374-5245
1-800-927-4314
www.cbobanker.com
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