Pros and Cons: Leasing vs. Buying a Car
Should you buy or lease your new car? This question comes up every time someone is looking at a new vehicle purchase. Many people have strong opinions one way or the other, but is one option always the way to go? We’ll take a look at the pros and cons of each to help you make an informed decision!
Leasing has a number of advantages over buying new, starting with the monthly payments. Leasing almost always comes with lower monthly payments than buying for the same vehicle. This is because you are essentially renting the vehicle from the finance company for the lease term (usually two to three years). Because of the lower payment, you can potentially lease a more expensive car than you could afford to buy.
Another neat thing with leasing is that after the lease term is finished, you have the option to buy the car (at a price determined when you started the lease) or let the dealer have it back. If the vehicle is worth more than the predetermined purchase price, you could buy it and then attempt to sell it for a profit. If you decide not to buy, you are free and clear of that vehicle, and don’t have to negotiate a trade in value.
A few other pros of leasing include paying less sales tax since you’re only paying tax on the difference in purchase price and estimated value at the end of the lease term. If you get a new car every few years, you’ll generally save on monthly payments by leasing over buying. You’ll also save on repair and maintenance bills since you’ll always have a car under factory warranty.
Although leasing has some niceties, it comes with some caveats. The largest con to leasing is that the purchase doesn’t build any equity. All the money invested in this car is gone after the lease term is up. You don’t get to “trade in” your lease at the end of the term, as you don’t own it. Along with not owning the vehicle, it comes with strict rules such as a limit to the number of miles put on the vehicle, penalties for wear and tear, and preventing modifications (sometimes even the simplest ones such as window tint).
Another issue with leasing includes small print fees when it is time to turn in the vehicle. Be sure to read the fine print. Some examples of fees include:
- $0.25 for each mile over the agreed limit
- $750 fee at vehicle return
- Fees for scratches and dents or stains
Leasing vehicles over the long run almost always costs more than buying a new car and keeping it for more than a few years.
Buying a new car comes with many benefits. The largest benefit is that you own your vehicle once the payment term is finished. After that point, no more car payments. This has the added benefit of allowing you to sell the car yourself or trade in the vehicle at any time to offset the cost of another vehicle.
Along with owning the vehicle, you are free to do what you please with it. You can drive as much as you’d like. You can modify the vehicle to look like it belongs in The Fast and the Furious. Nobody can stop you as it’s your car (please note that manufacturer warranty claims may be denied if the dealer can prove the modification caused a part failure).
Owning a car for the long term will save money vs leasing. After the loan term is up, you’re paying $0 for the car, whereas the person who leases will have a continual payment. You can also adjust some insurance levels at ownership to save even more money.
Buying new also has a few downsides. Many new car purchasers find themselves “upside down” on their car loans from the moment they sign the paperwork. The term “upside down” means that the car is worth less than what is owed on the loan. This happens because vehicles depreciate in value rapidly for the first few years. This is a sketchy situation to be in because when it comes time to trade in the car, the residual loan amount gets tacked onto the new loan, resulting in an even more “upside down” car. The easiest way to avoid this is to pay a significant (20% or more) down payment upon purchase to offset the depreciation.
Another downside to buying is that the monthly payments will generally be more than leasing. This is because you’re paying for the entire price of the car, not just depreciation. Other downsides include negotiating a trade in when you want to get rid of the vehicle and paying taxes on the entire purchase price of the vehicle.
Keep in mind that if you keep the vehicle past the warranty period, you’ll be responsible for all repairs that arise from that point on.
Things to Think About
In summary, the decision to buy or lease really comes down to you. The best option will be dictated by the next ten or more years. If you plan on keeping this car for that entire time, drive over 15,000 miles each year, or heavily modify the vehicle, buying is probably the way to go. However, if you want to have a new vehicle every few years and don’t drive more than 15,000 miles, leasing is the better option.
Alternatively, if you want to save the most money, buy a used car with a reputation for reliability and you could pay cash and skirt the car payments altogether.
Whatever decision you make, be it leasing, buying new, or used, you can find your next ride on Carsforsale.com!