Consider this first when deciding to buy or lease a car
If you’re looking for a new car, one of the most important decisions you’ll have to make is whether to lease or buy.
While there are a number of factors to consider when making your choice, Kevin O’Leary, chairman of O’Shares ETFs and judge on CNBC’s “Money Court,” says the first thing you should consider is how long you think you will have the car. The longer you plan to keep it, the more sense it makes to buy, he says.
“If you want to keep it long term or if you’re a car collector, I understand,” O’Leary told CNBC Make It of buying a car outright. “But if you’re short-term and every three years you want a new car, leasing is the way to go.”
O’Leary himself employs both strategies. He owns a vintage Porsche which he says is “no point” renting because he plans to drive it for “another decade or 20 more years”, but he has other cars with 36-month leases.
He says consumers should make sure their lease matches the car’s transmission warranty. The transmission connects the car’s engine to its wheels and allows it to move.
“The minute [the car] out of the warranty, all of a sudden you have the lease payment and every year you’re investing $200 to $500 in maintaining the car,” he says. “So I try to tie those two things together.
In addition to O’Leary’s advice, buyers should also consider how much they can afford to spend when deciding to rent or buy. Monthly lease payments are generally more affordable than car loan payments because they don’t require you to pay the full purchase price of the vehicle.
The downside is that even if you pay less, there’s no hope of getting your money back years later by reselling the car because it’s not yours. If you buy, on the other hand, after you resell the vehicle and get the money back, you’ll likely have spent less money overall.
You should also consider how much you plan to drive. Leased cars are subject to mileage restrictions, often an average of 1,000 miles per month. Exceeding this amount could cost you surcharges of up to 20 cents per additional kilometer.
If you plan to drive more than 250 miles per week – which would see you top 12,000 miles in a year – do the math with your potential rental terms to see if it will still save you money over leasing. ‘purchase.
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