Should Your New Car Commitment Be Long Term or Short Term?

Freezing temps, road salt and potholes have taken a toll on Connecticut cars this winter and many drivers will decide it’s time for a new ride. But with car ads touting special lease rates, customer rebates, $0 financing and more, is it better to buy or lease that vehicle?

According to Job Pimentel, General Manager of New Country BMW of Hartford, “Having sold and leased thousands of cars and trucks over the past thirty years, I have been asked this question by hundreds of new car purchasers; ‘Should I buy the car, or should I lease it?’ There is only one correct answer: It depends!”

Pimentel goes on to clarify his answer: First off, MATH plays a big factor. Manufacturers would like to sell you three cars in nine years, instead of two. The automotive lease is the tool they use to accomplish the shorter ownership cycle. Count on leases to generally contain the best manufacturer offerings and incentives most consistently, as it keeps you trading cars more often. It can be a win-win, though, so don’t be concerned yet.

A lease is made up of three primary components: Principal, Interest, and Sales Tax. Then again, so is a conventional purchase. However, unlike purchasing, the principal or depreciation is not paid on the entire value of the car. A lease payment contains depreciation between your selling price, and a pre-determined buyout, or residual value. The interest charge, often renamed ‘rent’ or equivalent, is calculated on the depreciation and the buyout. The sales tax is calculated differently as well. The customer pays sales tax on the monthly principal and interest, not the full price. Interest rates are a critical part of the economics of leasing, because a lease is just another way to finance a car, and current low interest rates have carried over to leases.

Factor two: PREFERENCE. In the past, some drivers chose a lease simply because they like to get a new car every three years. But as more safety technology features become standard each year, many now consider a newer model a necessity. Additionally, lease payments for 36 month terms are typically 33% lower than purchase payments over 60 months for the same car. Often enough that means you can drive a car with more options than might otherwise fit your budget. If you typically trade cars every 3-4 years or would prefer to, definitely consider leasing.

How to decide? Start with the math! What do the lease payments total? If it is close to what you spent for your last car, minus what you received for your trade in, that is a good start. Leasing definitely means less sales tax paid, and you are likely to have a car under warranty for most if not all of your lease term, which means potentially less maintenance expense as well.

“Leases aren’t good or bad, but they do need to fit,” concludes Pimentel. “The cost of transportation over time is the issue, and sometimes a lease can lower the cost of acceptable transportation, while also allowing you to drive a vehicle which makes you happy.”

About New Country Motor Cars of Hartford

New Country Motor Cars of Hartford represents Mercedes-Benz /smart / Sprinter, and New Country BMW-MINI. The organization prides itself on world-class knowledge and impeccable service. Visit www.newcountrybmw.com or www.newcountrymercedes.com for more information.