Picking out the right car for you can be fun, paying for it is not. The first question you need to ask yourself is whether you should buy or lease.
Leasing a car allows you to experience multiple cars over the years. That can great if you love cars, or if you get bored really easily. Leasing also allows you to drive a car with more options (therefore more expensive) that you may not be able to afford since the monthly payments for leasing are usually less than payments for owning a car. This means more spending money! And the one thing that people like the most: you are not tied down to anything which can be great if you may be considering a lifestyle change in the future, such as moving to a city where you won’t need a car.
On average, a leasing period lasts for 2-3 years with the option for early termination (which comes with penalties). There is also the option to buy the car once your lease is up. The residual value is negotiated when the lease is drafted. But if know ahead of time that you may consider buying your leased car, you may want to entertain buying the car in the first place.
If you don’t mind driving the same car for ten or so years or you have a long commute and the miles you drive may add up, then buying a car may be the right choice for you. Consider this: The average number of years it takes to pay off a car loan is five years. So, let’s say, you take out a loan to buy a new car for 20,000. You make those monthly payments and five years later, you own the car outright. But then you keep paying those monthly payments, but now you are paying them to yourself. Think about where you could be financially in another 5 years: you could buy your next car with cash, return to school, or be ready to make a down payment on an apartment or house.
As always, look at your options. For more information on buying vs leasing visit here.
Sara Sahakian is a student at the University of Richmond majoring in Economics and Finance. She has a great interest in the world of money and has taken a multitude of classes on money management. As an intern with NEXT, Sara’s mission is to help people find the best way to make their money work for them!