Buying Vs. Leasing at a Car Dealership
Buying or leasing a vehicle is a significant financial commitment that requires thoughtful contemplation.
Remember that the manufacturer’s suggested retail price listed on the Monroney sticker is merely a suggestion, not an etched-in-stone figure. Ask the dealer to reduce the price by removing unnecessary options.
Buying
Buying a car gives you ownership and lets you recoup some of the initial investment when you sell it. But it may be more expensive than leasing, depending on the price of the vehicle and your budget. Plus, if you buy a new vehicle, you must carry full coverage insurance.
Although many buyers require savings to achieve that, buying a car outright allows you to avoid monthly payments and thousands in interest costs. Those who do can save money on financing and markups at car dealerships by looking around for the best deals.
When you’re ready to purchase a vehicle, make sure to negotiate the price of the vehicle and any add-ons. Some dealer options, like credit insurance and gap coverage, are often overpriced. Getting these products elsewhere is often much cheaper, including from your insurer and lender. It would help if you were prepared to argue against any suggestions you need or must take these additional products.
Leasing
Leasing has long been a good choice for consumers who want to enjoy the latest in new car technology. Historically, lease payments have been lower than loan payments. That difference is shrinking with current high interest rates and dealer markups over MSRP. Some things to consider with leasing include the purchase option (buyout price), mileage restrictions, and disposition fees. You also don’t build equity in a leased vehicle, and you must return the car to the dealer minus any damage or excessive wear and tear.
Car buyers typically enjoy the benefits of ownership, including the ability to customize the vehicle and a firm idea of costs. When buying a car, a larger down payment and higher monthly payments are required, but you progress toward ownership each month. The typical auto loan term ranges from 3-7 years.
Financing
Buying a car typically costs less than leasing, and you own your vehicle at the end of the loan term. Buying also means you don’t have to worry about mileage limits or pay a penalty for early termination.
Regardless of which option you choose, you should compare shop for financing before you go to the dealer. Ask each dealer to send you the total “out-the-door” price, including taxes and fees. It allows you to compare offers on an apples-to-apples basis and more easily catch extra charges or add-ons that may slip into the deal. Negotiating the annual percentage rate (APR) and loan term with the dealer is essential, just as you would with a lender. Some dealers offer manufacturer-sponsored low-rate or incentive programs. You also can save time and money by bringing in a pre-approved financing offer from a credit union or bank, which the dealer will usually accept.
Options
Car dealerships typically have monthly, quarterly, and annual sales goals that they try to meet. You may feel pressure to close the deal if they don’t hit those numbers. You can avoid this by shopping at multiple dealers.
If you decide to lease a vehicle, ensure you know the upfront costs included. These often include the first monthly payment, an acquisition fee, a refundable security deposit, and taxes. You should also know that you don’t own the vehicle and must return it when your lease expires.
Dealerships may offer a variety of financing options. Some have relationships with several banks and finance companies. However, you can save money by applying for financing outside the dealer through a lender or credit union.
It’s worth using a car-buying and auto-loan calculator to determine your best options. And remember that dealers can’t negotiate the prices of credit insurance and gap coverage.