Advantages to Buying a car
- You own the car
- You can make any modifications you want
- You can drive it as many kilometres as you please
- You can drive the vehicle for as many years as you want
- Buying is cheaper in the long run if you drive it for many years
- Buying is also cheaper if you plan to buy it outright without taking a loan
Advantages to Leasing a car
- Lower initial costs
- Lower monthly payments through leasing a car versus financing a loan
- Repairs (that are not your fault) are the responsibility of the owner
- You like to drive a new and fairly trouble free vehicle
- No resale or trade in obligation
Disadvantages to Buying a car
- Financing is very expensive versus the low monthly lease payments.
- New cars are VERY expensive may have to settle for an old model
- Bound to a fix termed finance plan
- Down Payment can be costly
Disadvantages of Leasing a car
- More expensive in the long run if you choose to buy the car for residual value after the lease is up. You end up paying more than the car is valued at initially.
- No modifications Minor or Major
- Set amount of kilometres
With these pros and cons in mind deciding which one to choose is a good suggestion. If you have to have the best car on your block then leasing may be for you. But if you want to drive it for a long time and own it then buying a car will be the right path. Below is an examples of payment plans.
Leasing: A new luxury car has a purchase price of $24,500 and can be leased for 36 months with no down payment for $345 a month plus taxes. After the 36 months the car has a purchase option price of $14,500.
$345 (monthly payments) x 1.12 (tax) = $386.40 ( monthly payment + tax) x 36 months = $13,910.40 at end of the lease.
If you want to purchase the car it would now be $13,910.40+$14,500= $28,410.40 in total by the time the car is yours.
Buying: You can take out a loan to buy the car outright at an interest rate of 1.8% compounded monthly. When you buy the car you pay GST, PST and a down payment of $3000. Using the TVM solver we can discover monthly payments then the total cost of purchasing the car.
N=36 (Number of payments made to the account)
I%=1.8 (Interest rate)
PV=$27,440 (this is the initial car cost of $24,500 x 1.12 for tax) or the loan itself
PMT=$783.56 (monthly payment)
FV=0 (Future value of the loan)
P/Y=12 (Number of payments per year)
C/Y=12 (Number of compound periods per year)
Beginning or End
Now that we know monthly payments we can see how much we payed after the three years.
36 months x $783.56 (monthly payment) = $28,208 + $3000 (down payment) = $31,208 total after the three years.
To calculate how much was interest we simply subtract $27,440 (loan) from the total payed at the end of the three years. $28,208-$27,440= $786 dollars payed in interest
By the end in this situation that leasing the car is cheaper you own it after the lease is up and the only difference is the $3000 down payment you used when buying the car so it would be smarter to lease this car instead of buying it outright.
Leasing: A new luxury car has a purchase price of $24,500 and can be leased for 36 months with no down payment for $345 a month plus taxes. After the 36 months the car has a purchase option price of $14,500.
$345 (monthly payments) x 1.12 (tax) = $386.40 ( monthly payment + tax) x 36 months = $13,910.40 at end of the lease.
If you want to purchase the car it would now be $13,910.40+$14,500= $28,410.40 in total by the time the car is yours.
Buying: You can take out a loan to buy the car outright at an interest rate of 1.8% compounded monthly. When you buy the car you pay GST, PST and a down payment of $3000. Using the TVM solver we can discover monthly payments then the total cost of purchasing the car.
N=36 (Number of payments made to the account)
I%=1.8 (Interest rate)
PV=$27,440 (this is the initial car cost of $24,500 x 1.12 for tax) or the loan itself
PMT=$783.56 (monthly payment)
FV=0 (Future value of the loan)
P/Y=12 (Number of payments per year)
C/Y=12 (Number of compound periods per year)
Beginning or End
Now that we know monthly payments we can see how much we payed after the three years.
36 months x $783.56 (monthly payment) = $28,208 + $3000 (down payment) = $31,208 total after the three years.
To calculate how much was interest we simply subtract $27,440 (loan) from the total payed at the end of the three years. $28,208-$27,440= $786 dollars payed in interest
By the end in this situation that leasing the car is cheaper you own it after the lease is up and the only difference is the $3000 down payment you used when buying the car so it would be smarter to lease this car instead of buying it outright.
A great site to find out how to build a car you enjoy and see what's in your budget is http://www.ford.ca/app/fo/index.do this site will allow you to build your own Ford vehicle and then choose payment options it gives you the option of financing and leasing to see which one is better for you.
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