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 and tell you what you need to know about how to lease cars, so you’ll be able to decide which option is right for you.
Should You Buy or Lease a Car?
Whether you choose to buy or lease your next car depends wholly on your goals, budget, and personal preferences.
Both buying and leasing cars have their benefits; the key is determining which of those benefits matter the most to you.
Before you begin your search for your next car, you should take time to decide what you want to get out of it what terms you’re comfortable with, and the financial implications, letting those factors drive your decision.
Below are some of the best benefits of leasing a car, followed by some of the best reasons for buying a car. Take a look and decide for yourself which option appeals the most to 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:
- 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.
- 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.
- 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.
- 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.
- 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 is worth less money.
- 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:
- 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.
- 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.
- 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 number of miles you can drive and charge a hefty fee when you exceed the limit.
- 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.
- 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.
How to Find the Best Car Lease Deals
If you’ve decided to lease a car after reading the benefits of leasing above, you may be wondering where to start.
Luckily, leasing a vehicle is easy if you know what you’re looking for. In a lot of ways, initiating the lease on a car is similar to buying one.
The main difference between the process of buying a car vs leasing one is that leasing a car is usually less complicated.
If you do just a little bit of homework and follow the steps below, you can not only walk away with a new car lease, but also with an awesome deal.
Here are the steps you need to take to snag a deal on your next lease:
- Know your preferences: Are you a single college student with zero need for a backseat or a mom who needs two additional rows for kids and luggage?
- Compare cars: Once you know what type of car you need, look at some models that fit the category. What are their features? How about the mileage? Ratings? Safety?
- Go to the dealership: Once you have a good running list, go for a test drive and ask lots of questions. This step will tell you a lot as you feel out how the car actually operates on the road.
- Compare your options: Now that you’ve test-driven some cars, chances are your list has shortened. Take that short-list and compare costs to shorten it even more.
- Stand your ground: Now you go back to the dealership to talk money. How much you pay each month will depend on the purchase price you and the dealer settle on, so make lowering that number your main priority, then tell the dealer you’re there to lease.
- Be consistent: Once you’ve signed the dotted line, make sure you know the terms. Make payments on time to avoid fees and be sure to meet the length of your lease.
The Difference Between Lease and Finance
One question car shoppers frequently have on their mind is the difference between leasing and financing a car.
These two routes to accessing a new vehicle are not to be confused, as both have completely different terms and outcomes, which I talked through above.
Financing a car is taking out an auto loan to help you purchase a vehicle, whereas leasing a car is making payments that allow you to use the car for a pre-determined amount of time.
When you finance a vehicle, you own it (assuming you make your payments). On the opposite end of the spectrum, when you lease a vehicle, you’re borrowing it.
Simply put, financing helps you buy a car. Leasing helps you rent one.
Weighing the Pros and Cons of Leasing 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! If this is your goal, here is some great advice on how to get a loan from the bank, rather than being financed at the dealership.
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.
Leasing a car is like renting an apartment. Renting gives you monthly payments that may be more manageable than a mortgage, to live in a nice house or apartment.
While it’s yours for a time, that space ultimately belongs to someone else. You’re just borrowing it.