More Than Finances

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Should You Buy or Lease a Car?

This is the age-old question of car buying – how do you pay for it? If you’re not paying cash for the car, you have a choice of either buying or leasing the car. And depending on several factors, one is usually better than the other. When checking out car deals, make sure that you take these choices into consideration when making the decision to finance.

When You Should Buy a Car

Under most circumstances, buying a car makes more sense. With interest rates being at record lows, you can usually get a great interest rate on a car loan. The thing to remember about buying a car is that you lose the most value on the vehicle during the first year. And the utility you get from driving it does not outweigh that depreciation.

However, if you plan on driving this same vehicle for at least 3-5 years, or longer, the value you get compared to leasing is much higher.

So the bottom line is that if you plan on owning the car for a long time, buying is usually the better option.

When You Should Lease a Car

There are two circumstances when leasing a car makes sense. First, if you own a business and the car will be used for the business, a lease makes sense from a finance perspective. When calculating your expenses, you can deduct the cost of the monthly lease payments, where if you buy a car for your business, you have to calculate depreciation and other more complicated accounting issues.

The other time a lease makes sense is if you don’t plan on owning the vehicle for more than 3 years. There could be multiple reasons why you don’t plan on having a car for more than 3 years – maybe you will be moving, or maybe you just want a new car every few years. In this case, leasing a car would make more sense than buying a car.

Just make sure that you clearly read the lease terms and conditions, so that you don’t end up paying more than you intended.

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