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Buy or Lease Your Next Car?

MoneyWise

Christian talk radio with Rob West

August 25, 2022

The days of record low interest rates and barely noticeable inflation are behind us, so the decision of leasing versus buying isn’t so clear-cut. Maybe it’s time to go over the pros and cons again. We’ll do that today on MoneyWise. Not only are interest rates up, but used car prices are way up, too. All of this is making the idea of leasing a car a bit more palatable for some folks. As inflation squeezes the monthly budget, the need to cut costs becomes more important. Before we get into the nuts and bolts of buying versus leasing, however, let’s understand the difference. Obviously, buying a new car is just that. Before you can drive it away, you have to pay the dealership every last nickel of the cost upfront, and these days, that’s a whopping figure. Of course, the best way to do this is with all cash up front, but that’s getting harder to do. That means most people have to finance the purchase of a new car, ideally while still putting down as much as possible to minimize borrowing. Fortunately, there are a number of sites you can check out to get the lowest rates and best terms for an auto loan. These include Bankrate. com, NerdWallet, and LendingTree. Now, what does it mean to lease a vehicle? You might compare it to signing a lease for an apartment, except with an apartment, you don’t have mileage restrictions. A lease gives you use of the vehicle for a set period of time. Most leases run for 36 months. Unless you pay the entire lease amount up front, you’ll make payments each month. When the term is up, you have two options. You can hand back the keys, or purchase the vehicle. There you probably have some negotiating power, because the dealership will probably want you to buy the car so they don’t have to deal with it. But most people turn the car back in and that means, they give up any equity the vehicle may have. LEASING PROS Still, there are a few advantages that come with leasing a vehicle. The big one, of course, is that the monthly payment will usually be lower than if you purchase it. In some cases, leasing a new vehicle may have a lower monthly payment than if you buy a late model used one. With a lease, you’re not paying down the principal on a car loan. Instead, your lease payments are really just covering the normal depreciation of the vehicle for the life of the lease. That’s a real attraction for some people, getting to drive a newer car for less monthly outlay than with buying a used car. Plus, some people don’t like the idea of having to sell a car when they need a new one. That’s why most just trade them in, usually for less money than they could get if they sold them on their own. With a lease, when the term ends, you just drive back to the dealership and hand them the keys. A couple of other advantages to leasing: You may be able to deduct some of the expenses associated with it, especially if you use it for a business. And if you typically drive the same number of miles each month, or you don’t drive much at all, mileage restrictions shouldn’t be a problem. LEASING CONS But leasing definitely has a few downsides. When buying, you have the opportunity to keep making monthly payments to yourself once you pay off a loan. That allows you to make an even bigger down payment when buying each new car, eventually getting to the point where you can pay all cash upfront. Well, with leasing car after car, that never happens. Remember, your lease payments are really just covering the cost of depreciation for the dealer. When the lease is up, the dealership still owns the car. You’ve accrued zero equity. Also with a car lease, you’re usually limited to 10, 000 miles a year. Go over that and you’ll be hit with big penalties. That could be a real problem if the length of your commute changes or you want to finally take that big, cross-country vacation. And while you won’t be charged for normal wear and tear, the dealership will go over the car with a fine-tooth comb when you turn it in and charge you for every tiny scratch or ding. BOTTOM LINE So while leasing might seem a little more attractive these days I wouldn’t recommend it for most folks. On today’s program, Rob also answers listener questions: ● Does the MoneyWise app require a subscription? ● What are some options for low-risk investments? ● What are the tax implications of selling a property? ● How do you respond to a fraudulent tax return filed in your name? ● What is the best way to investigate an investment opportunity? RESOURCES MENTIONED: ● MoneyWise App ● Find a Certified Kingdom Advisor ● Eventide Funds ● Praxis Funds ● Inspire Investing

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