Maximize Your Savings: Car Buying Advice from Tax Experts
If you are in the market for a car then you need to decide if you want to buy or lease. There are both valid reasons to buy & lease, but it really depends on your current monetary situation. For most people, the most cost-efficient purchase would occur by purchasing a used car with cash. Yet, even a clunker will cost several thousand dollars, so it’s not an option for everyone.
Why Lease Your Vehicle?
One key benefit to leasing a car is the lower monthly payments. While monthly payments on the purchase of a car are based on the purchase price, monthly payments on a lease are based on the car’s depreciation during the period you’re driving it. This means that an older car will have lost most of its value, thus having a low monthly payment. Depending on your credit score and the company you lease from, you might be able to secure a lease with a minimal down payment. A low down payment does mean higher monthly payments, but you will never own the car so there is little benefit to putting a lot down. Every lease agreement is different. With a lease you may be able to avoid repair and maintenance payments. Even if you are on the hook for these costs, a newer lease will require fewer repairs than an older purchased car. Leasing is the preferred option for consumers who require a nice new car for their work, or who don’t want to commit to the same car for a long period of time.
Buying or Financing
Financing the purchase of a new car will not be cheaper than leasing in most cases, but it does lead to a paid off car that you own. If your goal is to get away from monthly car payments then a lease should not be considered. Financing a used car will likely require a down payment around 10% to 20% of the purchase price but compared to leasing a new car, it may be significantly cheaper. On the other hand, securing a lease generally involves a down payment, the first month’s payment, and a dozen other fees.
New car purchases often come with a warranty to cover unexpected expenses, and when the car is payed off you can budget for maintenance payments instead of car payments. If you drive a significant amount every year, you will likely want to avoid leases because of their mile limitations. If you exceed your lease’s allowed mileage you can be charged a fee based on how many miles you’ve gone over or even charge an amount for each mile. High mileage devalues a car, but ownership gives you an opportunity to sell or trade in your car before it breaks down or becomes expensive to maintain.
Consumer reports suggests the average new car will last about eight years or 150,000 miles. Of course, this all depends on the car and how well it is driven and maintained. In most situations, financing a used car at a reasonable price is the better financial situation, but there are plenty of reasons to prefer a lease. Not being able to afford your monthly payments will lead to a car repossession which can be a financial disaster. However, if you choose to proceed you should read the terms of the finance or lease agreement and be sure to make an educated decision.
Before you decide on making your lease or purchase give us a call and speak with your tax expert. You can also view our other blog posts for great tips and insights. Here you can view some of the best apps to help manage your finances: https://molentax.com/7-best-apps-for-managing-your-money/. At Molen & Associates we can offer you insight and help you decide which financial decisions will be most beneficial to you.
Austin Long
Tax Advisor
