Should You Buy or Lease a Car: A Complete Guide
If you’re planning on getting a new car, you’ve probably asked yourself whether you should lease or buy one. This is a very common question nowadays when it comes to car financing and it really comes down to your preference and your financial status. Do you prefer to drive a brand new car every few years or do you like the feeling of owning property and driving a car through its full life-span? Do you have a chunk of savings that you can put towards a car or do you need a cheaper monthly rate? In this article, we’ll help determine whether you should buy or lease a car depending on your lifestyle and current financial status.
Buying vs. Leasing
Buying a car is pretty straight forward. You put a chunk of money down upfront, make monthly payments until you’ve paid off the full price of the car, and in the end you own the vehicle outright. Leasing works a little differently. When you decide to lease a car, you choose a term that you’ll essentially rent the car for. These terms are usually 3 or 5 year contracts that you agree to with the dealership. You may put money down upfront, you may not, but the biggest difference between leasing and buying is the total amount of the car’s price that you end up paying for. A lease only requires you to pay for the amount of depreciation that will occur during the time you have it.
For example, a car may be worth $25,000. If you buy this car, you will pay the full $25,000 and once you make the last payment you will own the car completely. If you lease it, let’s say for three years, the car will be worth $15,000 at the end of the three year contract. That means you’re only responsible for paying the $10,000 difference over those three years. At the end of the contract, you will turn the car back into the dealership at which point you can decide to buy the car for the residual value ($15,000) or you can lease a different brand new car.
Benefits of Leasing
There are many benefits of leasing a car. The biggest one is the fact that you’ll get to drive a brand new car every few years. Driving a new car means less money and time spent on repairs that can become quite frequent with older vehicles. It also means you get to drive the newest and best models with the most up-to-date technology and features. The monthly payments on a leased car are usually very low. Expensive cars become affordable and cheap cars get even cheaper. Since you’re only responsible for paying for the depreciated value, your monthly payments could be as low as $120 per month. Also, leasing a car doesn’t require a down payment. This is a great for those who don’t have enough to put a down payment on buying a car. If you do decide to put something down upfront, your monthly payments will be even lower.
Benefits of Buying
The biggest benefit of buying a car is that once you make your last payment, you own the car outright. No more monthly payments and you now own property that you can sell at a later date.
You don’t have the restrictions that come with leasing such as a mileage limit or the required full insurance coverage. Another great reason for buying a car is that how you use your car is your business and you can do with it what you want. Leasing means you need to keep your car in tip-top condition, no customizations, you’re required to purchase full auto-insurance, and you can only drive a certain amount of miles for the duration of your contract. These restrictions may not work for you in your current circumstances. Also, you don’t need to have an excellent credit score to buy a car. Leasing requires a high credit score, whereas buying a car does not. As long as you have a small sum to put down up front you’ll be driving in your new car in no time.
What Fits Your Lifestyle
The decision on whether you should buy or lease a car comes down to several factors including personal preference and financial status.
You should consider leasing if:
- You feel safer in a new car
- You don’t want to deal with the hassle of regular car repairs
- You don’t have a savings to put towards a down payment
- Your monthly income won’t allow for a large monthly payment
- You have good or excellent credit
- You don’t drive an excessive amount
You should consider buying if:
- You prefer to own property
- You want to save money in the long run
- You like to customize your vehicles
- You have a small savings to put towards a down payment
- You have a long commute or drive for work
- You expect more damage than normal wear and tear
Although it may make sense for you to lease a car based on your lifestyle or current financial status, it is simply smarter to buy a car. The benefits of buying a car outweigh the benefits of leasing for several reasons. In the long run, buying a car means you not only save money on the total cost put towards the vehicle, but also towards your monthly insurance rate. Having to lease a new car at the end of every contract means that over time you’ll end up spending more leasing a car and you won’t own any property in the end. Owning a vehicle means that when you’re ready to get a new one, you can sell your car and use that profit for a down payment. You also have more freedom when you own a car. Most leases limit you to ten or twelve thousand miles per year, so if you’re planning to take long road trips or drive for Uber you can forget about it. You also can customize your vehicle if you’d like to add cool rims or a remote starter, for example. Usually customizations are not allowed on leased vehicles because you need to return it in almost the exact condition you received it in. Speaking of which, you’ll be charged for any damage that’s considered more than normal wear and tear when you return a leased vehicle. So if you have pets or children, it might not be the best choice for you to lease.
Now that you know the difference between buying and leasing as well as the benefits of each, which makes more sense for you? There’s no right or wrong answer when it comes to this decision because it all comes to down to your personal lifestyle preferences and financial status. Although financially it makes more sense in the long run to buy, it might not be the best choice for you at the moment. Just make sure to weigh all the options and figure out what makes the most sense for you before making your final decision.
- Money Under 30 – Why You Should Never Lease a Car
- US News – Buying VS Leasing
- Consumer Reports – Leasing VS Buying a New Car