When the time comes to upgrade your ride, there are two options to consider, leasing vs. buying.
Good reasons to buy a car
Buying a car comes with numerous advantages. For a start, you’ll have something that you can even sell once you complete the monthly payments. If you can’t buy a new car, you can always go for a slightly used one and this could actually be more advantageous to you. This is because cars depreciate fast in their fast few years but the depreciate curve tends to flatten out after that.
Why is leasing a car so attractive?
To start off, when you lease a car, you can get a brand-new ride every few years. Additionally, you may end up paying smaller monthly payments compared to when you choose to buy the same vehicle. The reason why you pay lower monthly payments when leasing a car is because you are only being charged the cost of depreciation for the duration of the lease.
For example, if you are interested in leasing a car that costs $50,000 for a period of three years, the car’s residual value at the end of the term will be calculated and your monthly payments will be determined by the interest rate charged. You may end up paying much lower monthly payments than the cost of buying the car.
However, at the end of the lease, the car is taken and you’re left with nothing. If you were paying monthly for buying the car, you have something that you can later sell or keep using for several years.
How many kilometers do you drive in a year?
One of the things that most people are unaware of when taking a lease is that the lease rate is usually calculated based on your yearly mileage. In most cases, the lease rate that you’re given is calculated based on a fairly low mileage. This means that if you end up exceeding this mileage, it will cost you. The most common limit for Canadian drivers is 25,000km a year. But it’s easy to go over 30,000km per year especially if you often drive from home to work. Sometimes those short commutes are the ones that push you beyond your mileage cap. Also, be careful about paying for little repairs at the end of the lease because car companies are usually very keen on checking these things.
Are you self-employed?
There’s a misconception that if you are self-employed, leasing a car is better than buying. This applies depending on the type of car you want to lease. For instance, if you are leasing a car that is valued at much more than $40,000 then this could actually give you better tax deductions. The amount of deductions that you can make if a car is leased is more favorable for expensive cars. However, if you are self-employed and have an average budget and don’t need to buy a very expensive car then it won’t make much of a difference if you choose to buy or lease.