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MolarBond

Leasing Vs Buying A Car

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As a student with no income (just an LOC) and in need of a car, what would you do? Under what conditions would you lease? When would you buy? I need as much information as possible because I am a bit behind on these issues. 

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Leasing will always be cheaper monthly than financing when comparing the same new vehicle. With that said, you could go buy something of much lesser value (used) and pay even less. I would suggest the latter option. Really all you care about is having a vehicle that gets you where you need to be for the next 4 years. Ideally you want to find a balance between spending as least as possible while still having a reliable vehicle that isn't constantly breaking down. 

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How much money do you have to buy a car? With no income, leasing a car for an extended period of time is probably not the best option. If you really need a mode of transportation and have a few thousand to spare, buy a used Honda Civic or Toyota Corolla. They're quite reliable, good on gas and cheap to insure (assuming you have a clean record).

 

Now to address your question on whether to buy or lease, it depends on what you prefer. I like to have the newest model so I lease my cars for 3-4 years at a time. Leases are cheaper monthly than financing but you don't own the car at the end of the term and should you decide to buy, you pay tax on the residual. Rule of thumb is to never put more than $2000 down on a lease, as you never see the money again. Anything more than 2.9% interest, in my opinion is far too high. I'm paying 1% interest right now.

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Also consider how you'll use the vehicle. We have kids and a dog who goes places with us and will be doing long driving trips home to the Island. A lease just would not make sense for us given the likelihood of very significant wear and tear and excessive kilometres,so we financed both our vehicles.

 

One of our vehicles was a manager-driven demo. It had 10,000km on it but was considered brand new for financing and insurance purposes. We got a promo rate, bonus, and were able to get replacement cost insurance (you typically have to be the original owner to get that.)

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If you're using the LOC to purchase the case, leasing is not the best financial decision, but it will get you a newer car. The best idea (which has been mentioned above) is to find something about 2-3 years old (or older if you don't care) and just buy it outright. If you keep it for around 5 years and trade it in, it'll probably still have some decent value (obviously depending on the model of car you buy).

 

My first car was a used Toyota Corolla (it had about 90K). I put maybe another 90K on it in 5 years, then traded it in for something newer. It barely cost me anything over that time period, other than routine maintenance (oil, tires, brakes). They really are great cars if you just want something that's cheap on gas to get you from point to point.

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Wait until the new models come out and buy a one year old car from the dealer that was driven by the manager and has 12-15,000 km on it. They will give you a deal, finance it and you will pay monthly and you will have a good used car for the next 6 years or so.

It's last you to the end of a 5 year residency without too much trouble too. The quality of cars being made now means if you take good care of it (maintenance etc) you can get 10 years out of it without too much trouble most of the time.

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