Should you lease a car or buy a car? This is a question that many car shoppers face and the answer is simple: it depends.
If you’re trying to choose between a lease or a purchase, here’s some guidance on the benefits of leasing versus buying a car to help you make this important decision.
What to Consider When Looking for a Car
Before tackling the question of leasing versus buying, put in some time to deeply consider what you’ll need from your next vehicle and what you can afford to spend. Key concerns include:
- Usage: Is your car primarily used for quick jaunts to the grocery store, or are you putting in hundreds of miles every week commuting to work? Importantly, do you see your vehicle usage changing in the next few years, due to shifting needs of your career or a growing family?
- Budget: How much can you realistically afford to pay every month? Include insurance, parking and gas in these calculations. Also consider where money would come from in case of an accident or if major repairs were required.
- Financing options: Will you qualify for an affordable auto loan with low rates? Do some research into what kind of loan you can expect to get, so that you can more fully understand the monthly cost of purchasing a vehicle, and compare those costs to a monthly lease payment.
Buying vs. Leasing
Buying a vehicle means that you either own the car outright, or you will own it once your auto loan is fully paid off. Leasing a vehicle means that you agree to pay a certain fee per month for a certain term, after which the car goes back to the dealer. Three years is the typical period for a lease.
Leasing a car generally means that you get to drive a new vehicle, but with lower monthly payments than you’d expect from an auto loan to finance your purchase of the same car. However, similar to renting an apartment, you’re not building equity in the vehicle. Buying a car, on the other hand, offers all the benefits of ownership plus residual re-sale value – when you’re ready to say goodbye to the car, you can sell it and pocket the money.
LEASING: Lower Monthly Costs – But Read the Fine Print
The benefits of leasing are that you can enjoy a brand new car every few years, without the hassle of constantly purchasing and selling vehicles – and for a lower monthly cost. While you’re not getting residual value, most lease agreements do offer a warranty with free repairs. Car leasers may appreciate knowing that if an unforeseen car expense arises, they’re less liable for these costs. If you’re self-employed, leasing a vehicle may also offer tax advantages.
Before choosing a lease, it’s important to understand the fine print. Leasing fees can add up quickly: including the security deposit, acquisition fee and end-of-lease cleaning fee. Moreover, leases often have an early termination fee, so you could be looking at a steep payment if you need to break the lease ahead of schedule. Mileage limits also apply, which means your monthly payment could increase if your driving habits unexpectedly change.
BUYING: More Freedom and Flexibility – But Budget Wisely
There are many advantages to buying a car. In terms of financials, you get eventual ownership once the loan is paid off, which means residual value in your pocket. Buying also offers more flexibility: you can choose your preferred make and model, year, color, interior features and so on, and modify the vehicle to your liking. Freedom is another benefit. Last minute cross-country road trip? No problem. With your own vehicle, you don’t need to worry about mileage limits.
When buying a car, it’s important to budget smartly. The vehicle is yours for the keeping so make absolutely sure it’s the right one and that you can afford the down payment, monthly payments and the cost of all repairs. Budget smartly, as auto expenses can arrive with little warning. It’s also important to remember that cars depreciate in value, so shop smartly – a good deal upfront may offer less resale value in the future. If you’re purchasing a used car, it’s even more important to balance your budget today versus the cost of future repairs. Checking a vehicle history report is always a good idea!
Whether you choose to buy or lease a car, remember to shop around and check for special offers. Certain car models may offer a cheaper lease deal; and when it comes to buying a car, you could get a green auto loan discount by purchasing a new or used hybrid or electric vehicle.