21 Dec Leasing Car vs. Buying Car: The Right Choice for Veterans
It’s not cheap to buy a car, and many people can’t afford to buy them outright. Even with long-term auto loans, buying a new car can be challenging to finance. But car leasing may open up new opportunities for veterans. Leasing your vehicle allows you to maintain low monthly payments while replacing your car every few years.
In this article, we’ll discuss leasing a car vs buying a car and what the right choice is for veterans.
Leasing Car vs Buying Car: An Overview
It can be hard for civilians and veterans to decide between leasing and buying a car. While buying a vehicle makes it your own, it can cost you more in the long run. On the other hand, leasing offers lower monthly payments and allows you to drive a vehicle that may otherwise be out of your price range.
However, leasing a vehicle can enter you into a cycle of continuous auto payments. Leasing is becoming a more popular option and will likely be here to stay.
Related Article: How to Get a Car Fast
How Car Leases Work
Simply put, leasing a car is similar to long-term renting. Putting money down and making additional monthly payments will make it yours for the duration of the lease. When the lease ends, you must return the vehicle to the leasing company and decide whether you want to start a new lease, purchase a car, or go carless.
The terms of a car lease involve an agreement between the lessee (the person paying to borrow the car) and the lessor (the company that owns or will buy the car). You will be required to pay a monthly lease payment based on the vehicle’s depreciation, along with interest and fees at the end of the lease.
As part of your lease agreement, you are covered for the following items:
- The amount you have to pay at the beginning of your lease.
- Leases typically last between two and four years.
- Its current value and its expected value at the end of the lease.
- At lease’s end, you’ll have to pay fees.
- An interest rate on a car loan is an example of the “money factor” or rent charge.
- You may be charged for returning a car before the lease ends.
- They are permitting you to drive a certain number of miles per year. Leases usually limit you to driving 10,000 to 15,000 miles per year; you may have to pay a per-mile fee if you go over that limit.
Some rules may seem restrictive, but keep in mind that you don’t own the vehicle. The lessor keeps the title, and the car must be returned in good condition at the conclusion of your lease.
Related Article: How Much Can You Afford to Spend on a Car?
How Buying a Car Works
When it comes to buying a car, the process can be complicated and lengthy. As a buyer, you have to identify and locate the type of car you’re looking for, test-drive it, secure financing, negotiate a fair selling price, and finally, complete the transaction by signing the paperwork.
To buy a car, the following steps are necessary.
A Budget-Friendly Approach to Buying a Car
The first step for veterans is to figure out the budget for their vehicles. Estimate how much you’ll spend each month on vehicle expenses. You’ll have to pay for fuel, insurance, and maintenance in addition to the cost of the car itself. These additional costs can average over $300 per month.
Getting Financing for Your Car Purchase
According to car buying tips, it’s better to save up for a car and pay cash instead of getting an auto loan. Auto loans are challenging to obtain. You may have to break your lease contract if you get shipped out of the country or relocate somewhere else. However, if you’re on active duty in the armed forces, you may have the option of getting out of a lease without repercussions.
Auto Financing for Veterans
Active duty military members are usually highly sought after by lenders. Your income is steady, and you don’t have a history of skipping payments as that would lead to trouble in your career field. According to Credit Karma, US Army, PenFed Credit Union, Service Credit Union, and Navy Federal Credit Union are among the more military-friendly auto lenders and banks.
Check out the VA’s Automobile Allowance and Adaptive Equipment program if you are a former or current service member with a service-connected disability. The program provides service members with a one-time allowance for purchasing a vehicle.
Military personnel and veterans are often eligible for special discounts and loans when buying a car. However, even if you choose to buy a car for yourself within the military, you should still budget wisely and do your research before making such a significant investment.
Finding the Right Car for Yourself
Several websites are available to begin your search, including Cars.com, Autotrader.com, Edmunds, etc. When you search for a good deal on the internet, you can check websites to determine the best price before going to a dealer.
When you purchase a new car, not only will it be brand new and shiny, but it may come with a bumper-to-bumper warranty as well. The problem with new vehicles is that their price is generally higher, and their value depreciates quickly.
Prices and Warranties Should Be Checked
The next step is to get a price for the car you selected. Getting the purchase price of a new car is easy using these two methods:
- You can contact three dealerships with the car you want by phone, text, or email. Including any additional accessories already installed on the vehicle, ask each for the total selling price. The best price will be apparent. Also, you can take your quote to other dealerships and ask them to beat it. This is an excellent option if you hope to lease.
- With Edmunds, you can lock in a price designed to match the average price others in your area are paying. Edmunds even labels which prices are the best. Then, ask the salesperson to email or text you a breakdown of the “out-the-door price,” including taxes and fees. By doing so, you’ll know how much you’re going to spend in total.
Related Article: Should You Use a Personal Loan to Buy a Car?
Pros of Leasing a Car
Leased cars offer several benefits, which could make them the right choice for you. Below are some advantages to leasing a car:
1. Affordable Monthly Payments
Leases are typically cheaper than financing a car, and the payments are generally lower than if you purchased it outright. This is because financed vehicle purchases require you to pay the entire purchase price of the vehicle plus interest over the life of the loan. Leasing payments, however, are calculated differently.
By arranging a lease, you pay monthly for the car’s depreciation (plus taxes and rent) instead of for the entire cost of the vehicle. Depreciation is only financed, so your payment will be much lower since you only finance the depreciation.
2. Less Cash Required at Drive Off
The down payment for purchasing a vehicle can range from 10% to 20%, but leasing often requires little to no down payment. When you sign a lease, you will normally have to pay the first month’s rent, taxes, title, registration, and an acquisition fee or other fees, but the costs are typically less than what you would pay for a car loan.
3. Cheaper Repair Costs
The manufacturer’s bumper-to-bumper warranty covers most repairs due to the short lease terms. However, some manufacturers may pay for maintenance as well. To avoid unexpected vehicle service bills, be sure you understand what repairs and maintenance are covered by your lease agreement and warranty.
4. Reselling It Won’t Be an Issue
Closed-ended leases require you to return the vehicle once your lease is over and move on to your next vehicle. Trying to resell it isn’t a hassle, and it is not your responsibility to determine the vehicle’s value at the end of the lease. At the end of the lease, you are liable for additional amounts, such as excess wear and use or excess mileage.
5. More Vehicles to Choose From
A specific car model may be popular amongst many people, but they might have difficulty qualifying for financing.
Leases, however, typically come with a lower monthly payment than buying a car, so you can afford higher-end models and trim packages. As a result, you have a wider range of vehicle options, so you can pick the one that suits your lifestyle the best.
Related Article: Is a Buy-Here-Pay-Here Dealership Right for You?
Cons of Leasing a Car
Leases may seem like an attractive prospect – after all, they’re much more affordable than purchasing a car. Still, leasing is not recommended for everyone.
The following are some of the major pitfalls to watch out for.
Long-Term Costs Are High
The car depreciates the most during the first 2-3 years of leasing – when you’re paying for the use of the vehicle. If you lease a vehicle, you will have monthly payments once your lease is over, but if you buy a car, you can drive the vehicle debt-free once you’ve paid off your loan.
The average lease allows a driver to drive between 10,000 and 15,000 miles per year. Any miles driven more than this will come with a very high penalty.
High Insurance Costs
Insurance for leased cars can be a lot more expensive than people think. In general, leasing companies require that you have a higher level of liability coverage on the vehicle – typically up to $300,000. As a result, you may pay much higher insurance premiums than if you had purchased a car instead.
Hard to Cancel
Leases are similar to rental agreements. The penalties are stiff for walkaway – if you do, you will face significant consequences. Instead, if you bought a vehicle, you could sell or trade it in if you no longer wanted it. Although there are some options to terminate a lease, it is practically impossible.
Requires Good Credit
Leasing is not an option for people with bad credit. Because you never pay off any principal on a lease, the overall financing costs are always higher. It would help if you also had a decent credit rating and a steady financial situation to qualify for leasing companies.
Military Discounts for Leasing a Car
Generally, consumers interested in leasing a car through the military car discount program must belong to one of the following branches: the military, the air force, the marines, the coast guard, the reserve, or the national guard.
Your dealer can tell you more about the scope of your warranty, so check with them. Veteran and retiree programs can sometimes be applied in most cases. GM, for example, recently rolled out its program to all veterans just before Memorial Day. The sale of new cars is even more attractive around Veterans Day, with discounts of up to $1,000 as offered by brands like Hyundai and Mitsubishi.
Should Veterans Lease a Car?
For those Veterans who like to drive a newer car on a low monthly payment, leasing is a logical option. It is an attractive idea for those who want minimal maintenance worries or commitments. A lease also allows you to drive a new car every three years or so.
Are you the type of person who needs to drive the latest car models? Are you comfortable making monthly payments? Answering “yes” to these questions might make you a good candidate for leasing. Fortunately, most leasing companies offering military auto loans are nationwide, which may make it possible for you to move your leased vehicle from state to state if transferred or reassigned.
If interested in leasing a vehicle, you will need a credit score of at least fair (over 620) and a monthly income that meets the financial commitment to qualify you.
Related Article: Veteran Auto Loan Assistance: Can Veterans Get Help?
When Leasing a Car Is the Best Choice?
When it comes to leasing a new vehicle rather than buying one, priorities play a major role. For some, deciding whether to lease or buy is a matter of finances. For others, it is about forming a connection with their vehicle.
Veterans who wish to drive a newer car for a lower monthly payment and meet the financial requirements would likely be better off choosing a lease.
When Leasing a Car Doesn’t Make Sense?
Leases may be financially more convenient, but you won’t fully be in control. Typically, leases come with a mileage restriction, and you will have to pay a premium if you exceed these limits – typically around 30 cents per mile. To avoid being liable for the vehicle’s value in the event of an accident, you’ll need comprehensive collision and gap insurance. Your search for a new car begins when your lease is up.
Leasing a Car vs Buying: Which Is Right for Me?
Veterans whose credit history prevents them from leasing their vehicles may still be able to finance their cars if their credit history meets the requirements of the lesser. In some cases, lenders and dealers will work with bad credit financing available. They are notable finance experts who can work with people regardless of their credit situation.
The benefit of buying a vehicle is that you own it after paying for it for a few years. After you pay off the car, it becomes yours. New cars can be costly, though, especially if they’re brand new. In addition to certified pre-owned vehicles and used cars, there are other more affordable options for buying a car. When you buy a new car with a loan, the monthly payments are typically higher than if you lease. Therefore, it seems that buying a car can be a better option than leasing a car for many veterans.