Choosing between leasing and purchasing when it comes to getting a new vehicle, one of the biggest decisions you will have to make is whether to lease or buy. Different options have pros and cons, and being aware of the differences can help you make the right choice for your lifestyle, budget, and driving needs. This guide will help you sort out the nuts and bolts of leasing and buying a car so you can decide which choice is right for you.
What Is Leasing?
I believe leasing a car is like renting. You pay a monthly sum to drive the car for a specified period, typically two or four years. When the lease ends, you return the car to the dealership, or you can buy it
It’s for a set price.
Pros of Leasing a Car
Lower Monthly Payments: Lease payments are typically lower than loan payments on the same vehicle because you are paying for the vehicle’s depreciation, not its total value.
New Car Every Few Years: Years of Leasing allow you to drive a new car every few years without the hassle of selling or trading in your old one.
Lower Repair Costs: Most leases include a manufacturer’s warranty, which will cover any major repairs, so you can have fewer surprises.
Down Payment: Your monthly payments are spread out, so rather than paying $5,000 up front like you would to own the vehicle, you can drive it for $500 a month.
Tax Benefits: The downside for the business owner may be the use of the lease as an expense if they do not own the asset.
Cons of Leasing a Car
No Ownership Equity: You do not own the car at lease end, so you have no asset to show for the payments you’ve made.
Mileage Restrictions: Leases have mileage limits, for example, 10,000–15,000 miles per year. Going over results in additional costs.
Customization Limitations: You are unable to customize a lease vehicle, as you need to return it the way you received it.
Potential Fees: There may be fees for excessive wear and tear if you also terminate the lease early
What Is Buying?
When you buy a car, you pay the full price right away or borrow money to get a loan. If you finish paying off the loan, the car is yours to keep, sell, or trade in.
Pros of Buying a Car
Full Ownership: After you pay off the loan on a car, it’s yours free and clear, and you can keep it as long as you want.
No Mileage Limits: When you own your vehicle, you can drive as much as you want without incurring mileage penalties.
Freedom to Modify: Owners can make vehicle improvements such as adding accessories, tinting the window, or upgrading features.
Long-term savings: While monthly car payments may be higher at first, as soon as you pay off the loan, you are free of monthly payments, making owning a car more cost-effective in the long run.
Resale or Trade-In Value: You can sell your car or trade it in, using its value on a new purchase.
Cons of Buying a Car
For Car: Upfront Costs: This is not just a down payment but the entire cost of the vehicle.
Devaluation: Cars lose value over time. So, your vehicle will be worth less than you paid for it.
Maintenance and Repair Costs: After you finish the warranty period, all repair and maintenance
costs belong to you and you alone.
Higher Initial Cash Outlay: Purchasing a vehicle usually involves a higher upfront payment than leasing.
Who Should Lease?
- Leasing is good for people who:
- Drive a New Car Every Few Years
- Want lower monthly payments
- Drive within mileage limits
- Similar to having a car with years left on
- It’s a warranty and no big repair bills
Who Should Buy?
Those who might prefer buying:
- Want to create equity in a car
- If you’re going to hang on to the car for several years
- Drive a lot and require unlimited mileage
- Want to tweak or personalize their car
Final Thoughts
There are pros and cons to leasing and buying. If you appreciate a lower monthly payment and having a new car more often, leasing is likely the right option. But if you value significant cost savings over the long term and want the freedom that comes with ownership, purchase is the way to go. Analyze your budget, lifestyle, and driving needs to determine the right call for your situation.