Buying vs leasing a Car
When deciding on whether to buy or lease a car, one needs to first determine whether, when he either buys or leases, he will be able to afford the amenities that might prove to be too expensive to purchase out rightly. Also, when leasing a car, one is also spending money on an asset that they will not own at the end of the lease period. Upon purchasing, one might settle for a bit less amount. However, since one is going to own the car, there is more freedom to make a decision on whether to replace the vehicle or even apply for its resale value towards the next purchase. Both can be good options, however, when making a choice on the way to go depends highly on what one needs from the car. From research based on this information leasing however seems to be the overall better option, more so, with the luxurious cars. This is proven in the case study of both buying and leasing financials (pricing) for the two car brands; Kia Optima, with its manufacturing company situated in South Attleboro, Massachusetts and Hyundai Sonata’s manufacturer situated in Pawtucket, Rhode Island (Stepp 69).
Below is a table showing price comparisons for Kia Optima and Hyundai Sonata car models.
|2015 Hyundai Sonata||2015 Kia Optima|
|Invoice Price||$20, 295||$20, 893|
|Manufacturer Suggested Retail Price||$21, 150||$21, 840|
|Monthly Payment Estimate||$353/Month||$364/month|
From the above table, for Hyundai Sonata, leasing has proved to create brand loyalty as survey shows that people that have leased their previously owned car have a double likelihood compared to those who bought their last car of getting a similar brand (Hyundai Sonata) again. The greatest attraction to leasing is the low payments per month. One can drive a more expensive car than he can be able to purchase. Hyundai Sonata can cost as little as 199 dollars per month with a down payment of 1,900 dollars per month. Monthly payments of the same on a loan spread over five years would go at around 350 dollars, depending on financial terms and conditions. However, a monthly payment that is low should not be the only consideration as pertains to cost (Osborne 5).Upon leasing, one is essentially renting the car on a long term basis and owns nothing at the contact’s termination. With leasing this car brand, one can face extra costs upon termination of the lease earlier than the agreed time or exceeding the agreed upon mileage, typically ranging between12, 000-15,000 thousand miles per annum. The Sonata currently has a base price of around 22,000 dollars with shipping. When buying both models, there can be smaller or no down-payment at all compared to full purchase, one also boasts of owning a new brand every few years as per agreed duration, one can also drive a better car like these two brands for lesser money and there is not long term financial commitments as well (Arthur & Steven 530).Below is the true cost to own a Hyundai Sonata spread over five years.
In (Stepp84), for Kia Optima, leasing a new car is relatively cheap compared to buying as its freight; dealer prep, fees and air conditioning all sum up to 1,830 dollars, estimated dealer discount of 1,475 dollars, factory discount of 3,000 dollars; manufacture incentive, taxable subtotal of 28, 054 dollars, adding up to a total price with 13 percent HST of 31, 701.02 dollars. A 1,000 dollar factory incentive is made available with zero per cent financing for 48 or 60 months, 1.99 percent for 84 months. However, the factory money is not available with 0.9 per cent lease rate for 48 months, 1.9 percent for 60 months. Kia, unlike Hyundai, gives customers $1,000 factory incentive on the 2015 model of Optima, who’s stacking can be done with 0 % financing for up to 60 months. This might seem a bit attractive for potential buyers; however it has a 0.9 % lease rate for 48 months, excluding the factory money. This in a way gives more sense to purchasing rather than leasing Optima. However, not all car manufacturers give low-interest rates like it is the case with Optima as many have high interest rates makes leasing still the most viable option financially (Arthur & Steven 536).
Pertaining to drive off costs of buying versus purchasing both brands, when one buys, he owns the vehicle and gets to keep it as long as he wants but on leasing, one has to return it at the lease’s end unless one decides to buy it. Pertaining to up-front related costs, buying includes the cash price or even a down-payment, registration, taxes and other fees whereas leasing typically includes the initial month’s payment, a security deposit that is refundable, taxes, a down-payments as well, registration number and other fees. In buying, monthly payments include loan payments which are considerably higher than leasing payments as one pays off the total purchasing price of either of the two cars, inclusive of interest and other finance related charges. According to (Arthur & Steven 526) the leases monthly payments are relatively lower than the loan payments for a newly purchased car as one pays only for the deprecation cost of the vehicle during the term of lease, and interest charges, making it more financially cost effective. In buying, one has to deal with either selling or trading in the car when one wants a different or new one, but for leasing, one can take back the vehicle usually at end of lease, pay costs incurred at the an end-of-lease and then walk away scot free. The car depreciates; however its cash value is for the owner upon buying, however for leasing, the car’s future does not affect the holder of the lease financially, though one has no equity in the vehicle. During the end of loan term for buying the car, typically four to five years, one has no further payments to make and has a built equity to assist in helping to pay for the next vehicle, whereas on leasing, at the end of the lease one has to finance for the car purchase or purchase a new one per month (Stepp 84).
For the next three years, leasing for Kia will be relatively cheap, at an average of $ 500 compared to the $1,000 monthly payments plus loan charges to purchase a new car for the next 36 months. As for Hyundai, the average price will be $24, 775 with fees for drive-off of $1,154, resulting in$294 monthly payments or the next three years. However for buying, it will be much costly as the average down-payment for a five year is $4,104, with an average interest rate of 1.64 percent, amounting to a monthly payment of $400 for the next three years. For the Kia Optima, leasing advantages are evident as the newer models can be bought at relatively lower costs with no upfront down payment. The lease only lasts for a few years and one can easily switch vehicles once the lease period terminates. There is also the option for terminating the lease earlier on for a minimal fee unlike buying which is irreversible and one is able to purchase the vehicle at a discount once the lease is up (Osborne 7).
Financially, the best option for both cars is to lease as evident from the above prices and financial considerations with leasing having reduced payments, many incentives for the manufacturer, up-front costs as well as taxes which are low, disposition which is hassle-free and no minor repair costs as well.
Stepp, Erin. “Annual Cost to Own and Operate a Vehicle Falls to $8,698, Finds AAA”. Newsroom.American Automobile Association. 2016: Pp. 67-88. Print.
Osborne, Hilary, “Cost of running a car ‘exceeds £5,000’. The Guardian (London: Guardian Media Group).2006: Pp. 2-9. Print.