Leasing vs. Buying a Car
When it comes to the question, “Which is better: buying or leasing a car?” there really isn’t a simple answer. It all comes down to your financial situation and your individual needs.
So while we can’t definitively answer the question, we can point out some differences between the two, the pros and cons of leasing a car versus buying a car, to help you make an informed decision.
Keep reading to find out which is right for you.
What's the difference?
The differences between buying and leasing a car are pretty similar to those between buying a house and renting an apartment.
When you buy a new car, you make a down payment and finance the remaining costs with an auto loan. Your auto loan has specific terms and defined interest rates. When you pay off the loan, you own the car.
With leasing, you’re essentially renting the vehicle. Your monthly payment goes towards the car’s depreciation. Some leases include a purchase option, which gives you the chance to buy the car outright at a specified time.
Pros and cons of buying a car
Pros:
After you’ve paid off your car loan, it’s yours. You own it. So, you can customize, make upgrades, do whatever you want with it.
Also, when you’re buying a car, your loan payments will eventually end. If you’re continually leasing every few years, you’re going to be stuck in with perpetual payments.
Once you own the car, you can sell it or trade it in at any time.
Cons:
You might have to save for a while to make the down payment on a new car. They can be quite large, depending on the make and model.
Monthly payments are also typically higher than those on a leased car.
While the maintenance costs associated with your car will be covered under the manufacturer’s warranty for a while, that warranty will eventually expire. Once it does, you’re financially responsible if something needs to be fixed.
Also, the value of a new car depreciates quickly over the first few years. This means that when and if you decide to sell or trade in the car, you won’t get the same price as when you bought it. Essentially, you’ll lose money on your investment.
What car can I afford? Try our monthly car payment calculator to find out.
Pros and cons of leasing a car
Pros:
There are a few short-term advantages to leasing a car:
- The down payment is typically smaller
- Monthly payments are usually far less
- Typical lease is 3 years, so most repairs are covered by warranty
Many people also like to lease because it lets them drive a new car every few years, without the hassle of trying to sell a car. Once the lease is up, you just turn the car in and get a new one.
Cons:
The short-term benefits of lower monthly payments and warranty-covered repairs may seem attractive at first. But remember, you’re not gaining any equity in the car since you don’t own it.
Even if your lease contract offers a purchase option, you’ll wind up paying a lot more for the car than if you’d just bought it in the first place.
Leases can be fairly restrictive. They can include things like a yearly mileage limit and “wear and tear” fees. So, if you drive more than the limit or it suffers any cosmetic damage, it could cost you.
Getting out of a lease early can be difficult, and costly. This could be a problem if your financial situation changes and you need lower payments.
Deciding whether to buy or lease a car
When deciding whether to buy or lease a car, it all comes down to your financial situation and individual needs.
If you can afford to make a larger down payment and higher monthly payments, buying a new car might be right for you. While it will depreciate over time, you will eventually own it outright and not have to budget for your monthly auto loan payment.
If you have a smaller budget and need lower monthly payments, leasing a car could be the better option. After all, smaller payments might let you save towards a down payment on a car you plan to buy.
The important thing is to educate yourself and determine which option is best for you, right now and in the long-term.
We’re here to help
If you still have questions about your particular financial situation, don’t hesitate to contact us.
