To buy or to lease?

Once a driver has settled on a used car, the important question is whether they want to buy or lease the vehicle. While each strategy has its pros and cons, drivers will ultimately have to decide which one is right for them.

MSN Autos examined some of the considerations that drivers will have to think about when it comes down to closing the deal on their used auto. A driver who is informed about the procedure that goes into buying or leasing a car will be able to negotiate better at the dealership.

The news source writes that for many years, leasing was not an economically effective way to own a vehicle. Buyers were often better off and buying a vehicle that they could keep for several years. However, leasing continue to grow in popularity as it allowed drivers to not have to pay a lot of cash up front and change their vehicle every few years.

Now, the news provider believes that the economic changes in the auto industry have made leasing a viable option, both in terms of perks and finances.

An important thing to understand about leasing is residual value. At the end of the lease, the driver has the option to buy the car outright for the residual value. This is calculated not at the time the car is turned in, but at the time the deal is signed, based on the mileage allotment and other factors. By negotiating a desirable residual value, drivers keep their options open.

But because the dealer will more than likely end up with the car at the end of the lease, it is in their best interest to keep the car running. This is why many dealers will offer free maintenance for the life of the lease – a feature that no potential lessee should pass up.

Another big benefit of leasing is that the monthly payments are often much, much smaller. If a buyer doesn’t have the ability to pay cash on a car, they’ll be forced to get financing with interest, not to mention that they’ll be paying sales tax on the full price of the car rather than just the fraction that they would with leasing.

Yet the real reason that leasing has become an attractive option is the unpredictability of the economy. It’s no secret that the auto industry struggled during the economy and while sales are up as of late, many dealers will still do anything to move their cars.

This is where a residual value becomes important. Dealers are making their estimates based on the auto industry today, and they simply don’t know what will come of the future. In two years, the car might be worth quite a bit more than the dealer first predicted. If it’s not, a driver isn’t stuck with the car like he would be if he bought it – he can turn it in or buy it if he wants to keep it. But if it is, he can buy the car for the residual value, then turn around and sell it for a profit if he or she desires.

That’s not to say that buying isn’t a great option – especially if the buyer has the cash to buy it outright. With dealers offering incentives and a number of great used cars hitting the market at reduced rates, it’s a great time to buy – or lease – a vehicle.