Whether you’re making an important move or have lived in Miami for a while, you know you need a car to get around. You’ll need to navigate beach highways and downtown city life to get the most out of Miami. But this requires another decision: Should you lease or buy your car? Both have their advantages, but the best option depends on your plans for Miami and where you see yourself in several years. Here’s a look at the details of both options to help you find the choice that’s right for you.
Related: 7 Car Leasing Mistakes to Avoid
Initial and Long-Term Costs
Leasing and buying immediately part ways when it comes to initial costs — how much money you have to put up front to get your car. When buying, a large upfront fee as a down payment, tax or other fee is often required. A lease requires upfront payments too, but they are typically much smaller fees, like a security deposit or the first month’s payment up front.
These differences continue throughout the life of the car, too. For instance, loan payments on a vehicle you buy tend to be higher than lease payments, so month to month costs are usually lower. However, there are a number of taxes, rent charges and additional costs that can affect individual contracts in different ways.
Loans and Credit
You will typically need good credit to purchase or lease a car. While leases are seen as traditionally easier to get, poor credit can still be a problem during the application process. More than credit ratings, the biggest difference between payment options here is that you are actually taking out a loan when buying a car — unless you’re paying cash — while a lease is an entirely different kind of contract that will not affect your credit as much in the future.
If you are worried about getting an auto loan with your income and credit level, take some time to compare lease and loan plans before making a decision. Take a look at local options for more affordable loans. Power Financial Credit Union, for example, offers rates as low as 1.59% APR and no payments for the first 90 days on certain loan packages — plus the ability to compare leases and loans.
It’s also worth mentioning that, if you really care about how your vehicle looks on the streets, you might want to choose leasing. While leasing does have it’s long-term problems, it’s by far the easiest way to switch cars every few years and make sure that you are always driving a new model that looks good. For some, this is reason enough to stick with leasing.
Car value is a more complex topic, however. Most leases predict the value of the car in the future, including depreciation, and use that to calculate how much the monthly payments will be. If the prediction is proven much too high, then you are losing money on the lease even if you choose to buy the car at the end of the lease. If the prediction is much too low, then the lease is actually a great deal for you, especially if you choose to finance and fully purchase the car.
However, keep in mind that in a lease this car value never belongs to you. It doesn’t increase your personal wealth, you cannot sell it to raise money and you cannot use it as collateral to take out another loan. Buying the car gives you many more options.
Leases can create additional costs in two important ways. First, if you decide to buy the car at the end of the lease, then you start financing based on the car’s current value — in other words, all your lease payments just became sunk costs, and you have to pay more for a car that has been depreciating in value. If you want to own a car, it’s usually better to buy one directly rather than wait a couple years to make up your mind.
The second cost that a lease can create occurs when you want to terminate the contract. Ending a lease contract early will create a termination fee, which is often high. Purchasing a car does not come with these same termination issues.
While both buying and leasing have their benefits, there are certain situations one is better than the other. Buying a car — especially one with low depreciation — tends to be better for long-term financial planning, while leasing a car is better for short-term plans.
Power Financial Credit Union is a GOBankingRates client.