Having a car is often necessary in today’s world, as it makes commuting more comfortable and efficient whether you are traveling for business or pleasure. Although new vehicles can be very expensive and difficult to afford for someone short on cash, two very popular options are leasing a vehicle or buying one in used condition.
Used automobiles are a great option when you have a limited budget to spend but still want to have a car at hand. In fact, sales for used vehicles in the US reach upwards of 3 million annually.
But not everyone opts to buy. Some prefer leasing and the benefits it provides. So weigh the pros and cons of each option before reaching a decision. However, it’s important first to consider some factors when buying or leasing a used vehicle.
Factors to Consider When Purchasing or Leasing a Used Vehicle
- Type of Car
Is the car meant to serve a single person, a couple, or a growing family? The number of people who’ll use this car frequently helps guide you when opting for the type.
For instance, a station wagon, SUV, or van can suit a growing family because it has ample space for additional seats or places luggage and other cargo. On the other hand, a 4 by 4 suits you if you frequent tough terrain.
Before deciding on the used vehicle you want to lease or buy, consider how much you’re willing to spend. Having a budget from the start makes it easy to cut down the number of cars you need to look into significantly. Both options can be beneficial depending on your financial situation, which will come into discussion later in this article.
- History of the Vehicle
A used vehicle was once owned by someone else who may not have handled it properly. Their driving habits dictate the current state of the car and how roadworthy it is.
Even if it looks top-notch, learn as much as you can about a car’s history if you are going to buy used. For example, inquire if the car has ever been in an accident. If the car has a sketchy history, look for another option while you still can.
- Seller or Leasing Company Reviews
Check to see if there’s any place you can read up about the seller or leasing company. If they have a website, or you have access to an online marketplace, read the reviews about the dealer or leasing company from previous clients.
Reviews can be an eye-opening experience. You get to learn more about their reputation and whether they are reliable or not.
Buying the car makes sense when you want to use it for a long time, but leasing is better for a shorter period. The duration you intend to use the car can help you make a better decision at the end of the day.
After you’ve made the necessary considerations, you can proceed to choose between leasing or purchasing an automobile. The best way to do this is by noting the advantages and disadvantages of each.
- Credit Option
Leasing a vehicle might make more sense for your situation, but it can be expensive in the long run and has numerous additional fees. So it might be better to opt for buying a used vehicle if that fits within your budget.
Advantages of Purchasing a Used Vehicle
Used vehicles are popular in the country. Some of the advantages they have over leasing include:
- Cheaper Option
Leasing a car is expensive, especially when you intend to use it for some time. So it makes sense to opt for a used vehicle which brings down how much you need to spend.
A car depreciates in value the longer it’s driven. So when you get a well-maintained used vehicle, it’ll cost you less overall. It works better when you have a strict budget of what you can spend on an automobile.
- Lower Insurance Rates
Car insurance applies to all vehicles on the road, but the rate is lower for used automobiles with a clean record. It makes sense, given the fact that the vehicle’s valuation is lower.
However, you must know more about its past and get one with a proper positive driving record.
- No Hidden Fees
Leasing a car sometimes goes beyond the amount you’re initially told. You’ll be surprised to note several hidden fees come with it. For instance, leasing a car incurs taxes, administrative costs, termination fees, mileage, and down payment.
The same doesn’t apply to buying a car. Ongoing hidden fees won’t apply, and you can drive away having bought a car within your budget.
- Original Warranty
You’re in luck if you manage to snag a used vehicle with its original warranty intact. Owning it means you can contact the manufacturer in case of any issue. Additionally, you can request an extended or new warranty as the new owner of the vehicle.
- No Customization Costs
Though dealers will try to sweet-talk you into getting some custom work done, you can drive off with the car as it is. That means you get to spend what you set out to use and not a penny more on customization.
On the other hand, when you lease a car, the owner will charge more to recover what they used to customize it.
- Added Asset
Owning a vehicle translates into an asset provided you maintain its good condition or make some upgrades. After some time, you can proceed to sell it and recover some of the original cost.
Disadvantages of Purchasing a Used Vehicle
Even after doing a thorough background check and tests on the vehicle, it’s possible for it to break down, leaving you without a vehicle to use. A used vehicle’s roadworthiness is lower, and it may be better to lease it because the loss isn’t on you.
- Repair Costs
After you buy the vehicle, it sometimes needs some work to upgrade it to the level you’d like. Doing so adds more to your spending. For instance, changing all the tires and checking engine parts that need replacing is costly.
- Sketchy History
While you might get some of the vehicle’s history from the dealer or previous owner, there’s often no way to properly authenticate it. In those cases, you have to go by their word, which can be inaccurate, meaning you are purchasing a vehicle you did not intend.
Advantages of Leasing a Used Vehicle
- Less-costly Payments
The cost of leasing a vehicle is lower, especially if it’s for a short while. Remember, the car has a lower value meaning you won’t be charged hefty fees to have it.
Also, you can take advantage of discounts that are on offer when you opt to lease a used car.
- Easy to Return
When you buy a used vehicle, returning it isn’t an option even when it breaks down. But, when you lease one, you take it back once you’re done. Any damage or repair costs aren’t on your shoulders if you get the additional insurance. The vehicle leasing company carries the brunt of maintaining the vehicles.
- Tax Reduction
Vehicles that you lease to use for business purposes come in handy when it’s time to file tax returns. Tax reduction applies in this case. It’s worth noting that taxes are lower even if the car isn’t for business in some states.
- A Taste of the Best
There are plenty of the latest automobiles on offer by leasing companies across the country. These vehicles give you a glimpse into the luxury of driving one even when you can’t afford to buy it yet. Also, you have the option of leasing new cars, depending on your need.
- Wider Variety
Buying a car limits you to the one you choose only. But, leasing means variety. Car lease companies have numerous makes and models on offer. So this period, you can opt for a 4 by 4, and then get a sedan the next time.
Such variety makes it possible to drive a wide range of makes and models that are limited when you buy the used vehicle.
- No Diminishing Value
When you buy a used vehicle, time and wear and tear diminishes the value of your car even further. However, you won’t have to worry about this if you lease it. Diminishing value is on the company lending you the vehicle and you don’t have to worry about the vehicle being worth less.
Disadvantages of Leasing a Vehicle
- Damage Fees
If you damage the vehicle, you’ll be charged an additional amount to cover the repair cost if you do not have insurance. Some leasing companies opt to hold your deposit or charge you extra fees for the damage.
- Extra Fees to Terminate Lease
Leasing a vehicle works with duration. If you lease a car for a set period and terminate the contract early, you’ll incur termination fees. These fees don’t apply when you opt to buy a used car. Anytime you don’t need to use it, you don’t have to worry about recurring payments.
- Higher Insurance Premiums
Leasing a used vehicle can be expensive, considering the higher premiums you’ll have to pay. Purchasing car insurance is mandatory for all vehicles, including used ones that you buy or lease.
However, when you lease a used vehicle, you must purchase extra insurance apart from the leasing company. For instance, you need insurance to cover damages in case you’re in an accident.
When to Buy and When to Lease
Leasing a vehicle and buying them can both be beneficial under different circumstances. Knowing that will help make the decision to purchase or lease easier for you.
You can lease a used vehicle when you only need a vehicle in a certain area for a short duration. Leasing long-term ends up being too expensive and can even cost more than the used automobile.
Purchasing used allows you to buy a cheaper car, but it is usually a better long term decision than leasing. Not only will it eventually paid off, you will have an asset that is officially your property, whereas no matter how long you lease, the car will still belong to the leasing company.
Lastly, check the impact of buying or leasing a used vehicle will have on your credit score.
What Impact Does Buying or Leasing a Car Has on Your Credit Score?
Buying or leasing a car can impact your credit both positively and negatively.
For starters, leasing a vehicle is a great way of improving your credit score. The payments you make to the vehicle leasing company are monthly and work to your advantage. They reflect as auto-loan payments and improve your score provided the leasing company reports to the credit bureau.
However, the opposite happens when you fail to make payments at the right time or end up skipping some. Your credit score drops with each failed payment. Additionally, your score takes a hit when you make early payments for the lease. Paying off the lease early comes with some hefty fees, and you end up with a closed account that damages the score further.
On the other hand, buying a used automobile can also affect your credit score positively and negatively if the purchase is on credit. While you have the option to pay cash, it’s possible to take out a loan to complete the purchase.
Once you decide to take out a loan to buy a used vehicle, ensure you make timely payments if you don’t want your credit score to drop. Timely payments reflect positively on your score and can end up improving it for the better.
Of course, the number of loans you take also impacts your score. If you owe several institutions different amounts, the risk of defaulting increases and leads to a lower score. So try and keep the loan under one lender and make on-time payments if you want a better credit score.
Leasing or buying a used automobile takes a lot of in-depth look into both options before opting for one. Both have advantages and disadvantages worth noting with varying impacts on your life. Still, used vehicles are a better option when you’re operating on a limited budget.
At the same time, check what impact both options will have on your credit score, especially when using credit to make payments. Defaulting or late payments can lower your credit score, while on-time payments increase it.