You have done all the work and research. You have picked out the color, make and model of your next Hyundai. You have negotiated the best price. But now comes the question that you may not be ready for: "Will you be leasing or purchasing this vehicle?"
At this point, one side of you is certainly attracted to the lower monthly payment of the lease. But the other side of you remembers always hearing that buying is the more responsible decision. As with many other financial decisions, there is no single correct answer for everyone. The answer is…it depends.
Let’s take a look at some of the differences between the purchase and lease options you have for your new Hyundai.
A vehicle purchase will require either a financing arrangement in which the full purchase price and a finance charge is paid over a number of months or an upfront payment for the full purchase price. Either scenario will be subject to a sales tax on your new Hyundai.
A lease will consist of monthly payments of the expected depreciation of the vehicle over the term of the lease, a finance charge and a lease tax. At the end of the term of the lease, you have an option to purchase the vehicle at the the purchase price less the depreciation paid over the term of the lease. This purchase could potentially be financed and is subject to sales tax.
In most any situation, a lease will initially be the less expensive option for a given period of time. However, if you are continually leasing vehicles, those payments will continue indefinitely and eventually exceed the cost of purchasing or financing the purchase of a vehicle. So the question then becomes: How long do I have to keep the car for a purchase to make more sense than a lease?
There are numerous factors that are involved in calculating "How long do I need to own it to make it worth it?":
Because of all of the variables that influence the answer, it becomes apparent that the answer is going to be different for every vehicle at any given point in time. However, in an analysis of a number of different lease arrangements, the general answer was that a purchaser would have to own the vehicle about one and a half lease terms for purchasing to make more sense than leasing. In other words, if the offered lease term was three years, the purchaser should be willing to commit to owning the vehicle for more than four and a half years, otherwise a lease is the better option.
An interesting alternative, which can make sense in many situations, involves leasing the vehicle and then subsequently purchasing it at the end of the lease at the "buyout" value. From a financial perspective, the total cost of the lease-buyout usually ends up being comparable to purchasing the vehicle. However, this option affords a great deal of flexibility in both your future finances and relative to the future value of the vehicle. You should keep in the mind that this option will require a lump sum of cash available at the end of the lease (or be subject to less advantageous used car financing rates).
In making your final decision, here are a few considerations to keep in mind.
If you are going to lease:
If you are going to purchase:
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