Is It Better to Lease or Buy a Car?

Though the decision to lease or buy a car has financial implications—money isn’t the only factor you should take into consideration before you pull the trigger on a deal.

Your personal taste and lifestyle should also play a big role in whether you decide to buy or lease a vehicle.

What’s best for one person can be totally wrong for another when it comes to cars.

I’ll give you the major pros and cons for each side of the lease vs. buy debate, so you’ll know which option is right for you.

Benefits of Leasing a Car

If you want to go this route, then you know the right way on how to lease a car. Here are 6 advantages of leasing a car:

  1. Lower monthly payments. The cost to lease a car is typically much lower than to buy one. Little or no down payment is required, and you don’t have to pay any upfront sales tax. However, when you return a leased vehicle, you may have extra charges for racking up mileage that exceeds the allowable limit, terminating a lease early, or having any unrepaired damage.
  2. Never being “upside-down.” When you lease a car you rent it for a fixed term, which is typically one to 4 years. The amount you pay each month is tied to the amount of depreciation that’s expected during the lease term. (Different makes and models of vehicles depreciate at different rates.) You only pay for the depreciation of the car that occurs during your lease term and you can never be “upside-down,” which is a common situation where vehicle owners owe more than their car is worth.
  3. Fewer repair expenses. If you’re covered by a manufacturer warranty during your lease term, you never have to worry about getting hit with a large, unexpected repair bill. However, you are still responsible for regular upkeep, maintenance, and the minimum amount of auto insurance required by the state where you live.
  4. Driving a new car more often. If you lease a new vehicle every few years, you will always have the benefit of driving a car with the most up-to-date technology, comfort, and safety features.
  5. Never having to sell a vehicle. Once a “closed-end” lease term expires you can simply return the vehicle or choose to initiate a new lease for a different vehicle. But you never have to go through the hassle of selling a vehicle yourself or being concerned about getting a fair trade-in value. Or you may have the option to buy a vehicle at the end of the lease term for a pre-set price. That could be a good idea if the vehicle is worth more than the agreed upon purchase price—or a bad idea if it’s worth less.
  6. No loan approval required. If you have less than stellar credit, you may not be approved for a car loan–or you’ll have to pay an outrageous amount of interest. Leasing companies typically aren’t as strict as lenders because they can easily take back the vehicle if you don’t make payments or if you violate any lease term.

Benefits of Buying a Car

Here are 5 advantages of buying a car:

  1. Paying less over the long term. Monthly lease payments are generally less expensive than monthly car loan payments. However, with each loan payment you can build up equity for the future when you decide to sell it or trade it in. Buying a vehicle and driving it for several years after you pay it off can be the cheapest way to own a car. The longer you drive it, the less it costs.
  2. Have the option to sell it. As a car owner, you have the flexibility to trade it or sell it (and pay off any existing loan balance) at any time. You’re never locked into a fixed ownership period like with a car lease.
  3. No mileage limit. When you need to drive a vehicle as many miles as you want, it’s much better to own it. Leases put caps on the amount of miles you can drive and charge a hefty fee when you exceed the limit.
  4. No restrictions on appearance. If you want to use a car or truck without having to keep it in perfect condition or want to accessorize it, you should always buy it.
  5. Discount the depreciation. Depending on the vehicle, 20% to 40% of its depreciation can occur within the first few years. So when you buy a 2- to 3-year-old-vehicle, you get the advantage of paying a price that reflects a substantial depreciation discount.

Should You Buy or Lease a Car?

If long-term cost savings on a new or used vehicle is your primary objective then you should buy a car and drive it into the ground! Or drive it until repair costs exceed the cost of replacing it. This is the best way to save money in the long run unless you have a really great investment plan for the money you could save by leasing.

If you like the convenience and lifestyle benefits of leasing a car make sure you understand what those conveniences will ultimately cost. You can enter information into a Lease vs. Buy Car Calculator and let it crunch the numbers for you to compare the monthly payments and total costs of different auto deals you’re considering.

Creative Commons License photo credit: W.I.N Photography

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Comments | 2 Responses

  1. says

    Looking back I wish I had leased my car instead of buying it. I realize now, my car will have 100k miles and its not even close to being paid off. If I had leased the car I could have returned it and bought something that fits better in my current lifes circumstance.

    Another benefit to leasing, you can return the car and never be stuck with it. So if your future life’s plans change, you don’t have to worry about being stuck with a car and payments.

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