Just two short decades ago, if you asked someone if they leased or bought their car, their answer would most likely be “lease of course.” When the market fell out, the car market fell out too. The crash of 2009 and changed the way people bought, sold and leased cars.
Still a popular option for those who have a car allowance, not everyone is lease-crazy. Not many individuals are opting to lease their cars these days. The reason? With interest rates so low, it makes more sense to purchase a car than lease it.
A lease is a great idea in theory. Like borrowing a car, you can drive around in the car of your dreams and still afford it. Leasing a car can cost about a third of what a car payment to buy costs per month, which makes it a viable option for those who want a higher end car that is within their monthly budget.
The problem? Many people have gotten burned on their lease. When the interest rates fell, and money became cheaper to borrow, it didn’t make sense to lease. Having no equity in the car at the end of the lease just didn’t seem like a smart money choice for many.
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Over the past two decades with less disposable income, not only are people opting to buy cars, they have increased their purchase of used cars. Many realize that buying a car that is just two years old, and in great condition, is a better option than paying full price for new. Disheartened in knowing that just driving a new car off the lot is a loss, they see the potential of a used car with few miles to be a much better buy.
What will 2016 bring for car sales?
There is talk that the Fed will increase interest rates this year. Due to the stability of the market, many are seeing the historic stagnation of the interest rates and speculating that an interest rate hike is on the horizon. Just speculation, no one really knows if it will happen or not. Why is that important? If interest rates hike that may mean that it will not only be more difficult to get a loan, the rates for a new car loan may increase substantially.
If the interest rates to buy a new car go up, then it is more likely that people will back away from purchasing not only a new car but a used one as well. If a buyer can’t get the car they want without paying a lot in finance charges, leasing may again look like a good option.
For many, the decision will come down to how much they have to spend, how much it will cost to finance, and which one is a better buy for their financial situation. In general, however, if interest rates begin to increase there is good reason to believe that leasing may become a more popular option again.
Which is better for you as a car buyer?
Technology is growing at such a fast rate you can barely get a car home before it has been upgraded and has more of the bells and whistles that you would have liked. Leasing allows you to buy a car and use it for a short time without the hassle of having to buy or sell it again in a couple of years when you want a newer car.
If you are inclined to purchase a new car in 2016 and don’t want to pay for extra repairs such as auto body repairs, you may want to lease and wait out the advances in technology for a while. In a healthier market, innovation will soar and you don’t want to be left with an expensive car that is outdated quickly.
If you are okay without the bells and whistles, and you just want a reliable car to get you from point A to point B you may want to consider a purchase. If money continues to stay cheap than buying a new car may make sense. It will save you from more costly repairs and normally come with a warranty that will get you through the next couple of years.
If you don’t want a huge car payment every month, consider trading in what you have and buying an older, used model. Cars run well past the 100 thousand mark due to better automotive design and engineering.
Likely you can find a car that will get you to the next decade and not create hardship in your monthly budget. You don’t have to sacrifice either, many used cars are an incredible deal and don’t come with a huge price tag.
So what is the future, car buying or leasing? It really depends on what the interest rates do, how stable the economy is, and what your overall goals are. If your car is working and you can wait, you may just want to hold on until the new year, or potentially the election, to see what happens to economic conditions.