Should College Students Lease or Buy a Car, Fox Business
Should College Students Lease or Buy a Car?
By Emily Driscoll Published April 29, two thousand thirteen Columns
Buying or leasing a car is a big-ticket purchase for students or latest grads, but a recovering economy and rough job market have made Gen Y drivers more cautious when seeking out a set of wheels.
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According to automotive data reporting company Polk, youthfull adults aged eighteen to thirty four accounted for almost 30% less of fresh cars bought in two thousand eleven than in 2007.
When tackling student loans and other financial obligations, experts say it’s significant for youthfull adults to weigh out their all of their options when looking to either lease or purchase a car.
“It’s significant to know what you can afford, what the financial picture of possessing or leasing a car looks like,” says Ron Montoya, consumer advice editor for Edmunds.
“It can be very tempting to truly want to get into a car that shows off that you’ve just graduated [but] if it’s not something that you can afford, you may run into trouble down the line.”
When determining whether to lease or buy, here’s what experts say students should weigh out before making the decision.
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Establish a Budget
Students and grads need to understand what they can realistically afford with the help of an auto calculator to find a price range of cars within their budget.
Making consistent on-time payments is just as critical for youthful adults to build a strong credit history as it is to stay within their means, says USAA certified financial planner practitioner, JJ Montanaro.
“I always encourage people to shoot for toughly 10% of their gross income, to be at that level or less when it comes to car payments and folks will look at that number and say ‘gosh, that takes a lot of the cars off my list’ but it will certainly keep them out of trouble,” he says.
For shoppers who end up buying, getting preapproved for a loan before going to the dealership can also give an idea of what their credit looks like, what interest rates they qualify for and how much car they can actually afford, making negotiation much simpler, recommends Montoya.
Leased cars have an annual mileage limit and going over that amount means extra fees.
“You’ll see an advertisement suggest for a lease but that number happens to come with Ten,000 miles a year and if you’re going to be over when you turn it in, it’s going to be twenty five or fifty cents a mile,” says Montanaro.
Montoya explains that leasing becomes a continuous cycle of leaping from car to car, leaving owners with nothing to showcase for it at the end of the leasing term.
“If at some point you want to stop that cycle, let’s say you choose to buy the car that you have leased, whatever you’ve paid for it up until that point is not going to count and you’ll have to just pay the balance off to purchase the car–basically the payments you’re making on a regular basis aren’t counting towards anything.”
Youthfull shoppers wanting plasticity rather than a long-term commitment may find that monthly and down payments are typically lower on a leased vehicle, according to Scot Hall, executive vice president of Swapalease.com.
“You’re just embarking to figure out…what path you want to take and the very first [car] you select might not be the best one–a shorter term commitment on something significant like a car payment might let you more lightly switch direction,” he says.
Leasing a relatively fresh car under warranty can also prevent cash-strapped grads from having to pay out of pocket for repairs, says Montanaro.
“A lot of brands are suggesting free maintenance for a certain number of years, so clearly that can be an advantage from a lease standpoint.”
Cars begin depreciating in value as soon as they’re driven off the lot and without the coverage of a warranty, owners are responsible for any repairs out of pocket.
If youthful grads plan to drive the car for awhile, it’s significant to keep in mind how their lifestyle needs might switch in that time period, says Hall.
“Things are very likely going to switch dramatically in a six to seven year period, possibly going from a single individual to a married individual with kids, and there is so much potential for quick switch there that I think it’s truly hard for someone to plan that far ahead,” he says.
Purchasing a car and driving it for a long time after paying it off in utter can save owners from having to continuously shell out for leased car payments and drive as many miles as they want without extra costs.
Calculating the true cost to own can help prospective buyers look at the cost of a specific car including maintenance and insurance expenses to give a rough picture of what ownership would look like over a five year period.
While owners pay their own maintenance costs, the experts say even more moderately priced cars have upgraded to better quality safety and technology features, explains Montoya.
“Cars are being made better than ever now and there’s not a lot that needs to be done to it nowadays as long as you maintain it, which does cost some money in itself but as long as you keep up with the decent maintenance, you shouldn’t have too many out of pocket expenses.”
