Just two short decades Sci Burg 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 changed how people bought, sold, and leased cars. Still a popular option for those with a car allowance; not everyone is lease-crazy. Not many individuals are opting to rent their vehicles these days. The reason? With low-interest rates, purchasing a car makes more sense than renting one.
A lease is a great idea in theory. Like borrowing a car, you can drive the vehicle 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, making it a viable option for those who want a higher-end car within their monthly budget. The problem? Many people have gotten burned on their leases. 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 didn’t seem like a smart money choice for many.
Over the past two decades, with less disposable income, people are not only opting to buy cars, but they have also increased their purchase of used cars. Many realize that buying a car just two years old and in great condition is better than paying full price for a new one. 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 as 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 market’s stability, many are seeing the historic stagnation of interest rates and speculating that an interest rate hike is on the horizon. Just speculation; no one 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 rate to buy a new cargo is up, then it is more likely that people will back away from purchasing a new car and a used one. If a buyer can’t get the vehicle 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 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 so fast that you can barely get a car home before it has been upgraded and has more of the bells and whistles 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.
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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 technological advances 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 want a reliable car to get you from point A to point B, you may want to consider a purchase. Buying a new car may make sense if money continues to stay cheap. It will save you from more costly repairs and normally comes with a warranty that will get you through the next few 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. You can likely 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 depends on what the interest rates do, how stable the economy is, and your overall goals. If your car is working and you can wait, you may want to wait until the new year, or potentially the election, to see what happens to economic conditions.
