Should You Buy or Lease a Vehicle?

A Sangera Subaru Guide to Buying vs. Leasing

There are so many factors that go into looking for a new car that it can be hard to fully understand the whole process. Once you choose the model and trim on the car you want, you then have to make an important decision: buy or lease. The only issue is that buying and leasing can be a very confusing step for many customers. It's hard to determine whether buying or leasing will be better in the long run. Here at Sangera Subaru we want to make sure our drivers are well informed before committing to buying or leasing.

Whether you are buying or leasing you are still walking away with a new car. The difference comes in how much you pay and the length of time that you own the car. When you are buying a car you are paying for the entire cost of the car. Most people can't afford to pay for the entire vehicle outright so they make a down payment, pay the sales tax (it can also be rolled into a loan), and apply for a loan to cover the rest of the cost of the vehicle. Depending on your credit history, your loan will carry an interest rate. Once you are done paying the loan you will own the car.

When you are leasing you are essentially paying to use the car. You pay a portion of what the vehicle actually costs, not the whole value of the vehicle. You have a choice as to whether or not you want to make a down payment on the car. Subaru doesn't require a security deposit. When you sign the contract you make your first payment and a down payment (if you choose to do so). Every month you will pay your monthly payment, sales tax on your monthly payment (varies by state), and a financial rate called "money factor" that is similar to the interest on a loan.

Once your loan contract is up you have a few options. When you lease a car a guaranteed future value (GFV) is determined. This is because car values rapidly depreciate once they are no longer "new." Say you purchase a car for $22,000 and it has a residual value of 50% after 36 months. That means that at the end of a 36 month lease the GFV will be determined at $11,000. Now that number is an estimate. If you love the car that you have been leasing you can pay the GFV that was originally established when you signed your lease contract. In terms of our example you would end your lease contract after 36 months and then pay $11,000 for your vehicle.

Now let's consider two other scenarios. If you end your lease contract and the value of your vehicle is more than estimated you have the opportunity to make some money. You can sell or trade the car in. You'll be able to pocket the equity (profit) from the sale. Now on the flip side of that, if your vehicle is valued at less than originally estimated you can just choose to walk away with no negative equity and lease or purchase another vehicle.

If you don't plan on keeping the vehicle then you are in a no-risk situation. You can make money if the car has a high value or simply walk away without losing money. While it's nice that you have the option to buy the vehicle after leasing it, we don't recommend it. Most people trade in their vehicles every three to four years anyways, so you may as well put the money that would go into buying the leased vehicle into buying or leasing another new model.

If you lease with the intention of buying your vehicle afterward you will most likely end up paying more money in the long run than if you just purchased in the beginning. The GFV is almost always higher than the actual value of the car at the end of the lease. If you buy a car outright instead of leasing with the intention to buy you will have a better chance of having equity at the end of your loan. You purchase the equity when buying a car by making higher monthly payments.

When it comes to leasing there are a couple other things you have to look out for. Subaru leases are usually for 10,000, 12,000, or 15,000 miles per year. If you feel like you're likely you can customize it up to 30,000 miles. If your driving habits are unlikely to change you can often predict how many miles you will drive each year and pick the plan that best fits your habits. If you go over that number you can be stuck paying a mile overage fee so it's important to choose carefully.

A benefit to a Subaru lease is the automatic built-in gap coverage. The gap insurance, also known as gap insurance, will pay the difference between what you owe on your loan or lease and what your vehicle is worth in case it is stolen or destroyed. This is important because it's very common to owe more on your loan or lease than your car is worth. If your car has been totaled or stolen you could still owe hundreds or thousands of dollars to the financing company. Subaru leases have built-in gap protection but loans do not, however you can purchase gap coverage separately.

In the end the decision of whether to lease or to buy is all dependent on your individual needs and driving style. You should look into leasing if you like to trade out your vehicle every three or four years, want lower monthly payments, want the newest features and technology, drive an average number of miles every year, and are willing to pay more over the long haul. You should buy a car if you don't mind higher monthly payments, want to build equity, want to own the car for over 4 years, drive a lot, prefer ownership, and want to avoid possible lease end charges. If you aren't sure which one is best for you then talk to a Sangera Subaru sales representative or finance specialist today!

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