Should I Buy or Lease My Car?
Point of Interest
If you need to find a new car, buying and leasing a car are both viable options. Buying a car helps you to build equity in an asset, but leasing is much less of a commitment.
If it’s time to get yourself a new set of wheels, you may be wondering if it is better to lease or buy a car. Ask around for opinions and you’ll get a number of different answers. So how do you decide?
It all depends on your end goal. With buying, the car is yours over the long haul, but there are some additional costs that come with it. With leasing, you won’t own the car at the end of your lease, but there are several costs the dealership will handle while you’re driving it. Ultimately, the answer to lease or buy a car will depend on a look at your financial situation and your longterm plans with the vehicle.
Buying a car
When you buy a car, you have two options — you can buy the car outright or take out an auto loan to cover the costs. For most, the latter of the two options is the go-to. By choosing to buy instead of lease, you are committing to a longer-term agreement with a lender or bank and will be paying out much more over the life of your agreement, both in principal and interest on the loan. However, at the end of that agreement, you will be the full owner of that car, whereas if you lease a car, you’ll have to turn the car back in with nothing to show for it.
As the owner, though, you will be responsible for some additional costs that leasing may not entail. These extra expenses include things like service costs, routine maintenance, all maintenance after the warranty is over and interest charges for the life of the loan.
Buying is best for people looking to build up equity in an asset long term or for people who don’t need to drive the latest and greatest model vehicle every few years.
Pros of buying a car
You own the car.
At the end of your auto loan term, you are going to own your car. This means that you’ll have an asset that you can continue to drive and sell if you want to recoup some of your investment to put toward a new car.
You have no mileage limitations.
Leased vehicles restrict you to a certain number of miles you can drive every year. If you go over those miles, you have to pay more money on the lease, which can get quite costly if you’re driving more than you expected. When you choose to buy instead of lease, you are the owner, and you can drive your vehicle as much as you want. The only thing affected by your mileage may be the duration of your warranty and the resale value of your vehicle.
You can customize the vehicle as you please.
Leased vehicles ultimately belong to the dealership. Much like a rented house, you can’t make customizations to the vehicle that are not easily reversible. When you own the car, you are free to do whatever you want with it. You may want to be aware of the potential hit to the resale value before modifying your vehicle, but the choice is still yours to make.
Cons of buying a car
You’re responsible for maintenance.
While some maintenance will be covered under your warranty when you buy a car, there may be things that are not covered, especially if you buy a used vehicle. Once your warranty has expired, you are responsible for all of the costs to fix anything that breaks.
You’re subject to depreciation.
The second you drive a new car off the lot, it loses value. The older the car gets, the less it is worth. When you buy a car, you are the one that feels the effects of depreciation. When you lease, the dealership deals with depreciation.
Your loan debt lasts years.
When you lease, your commitment to payments is usually one or two years. After your lease is over, you have no other financial obligations regarding that vehicle. As an owner, you are responsible for the auto loan debt for years until the entire car is paid off. Cash buyers are excluded from this, of course.
Leasing a car
If you love to have the latest and greatest vehicle, you may want to consider leasing, as it prevents you from being locked into a vehicle for the long term. Leasing may also be a better fit for people who are looking for smaller monthly car payments, as you can often get a lower monthly payment with leasing vs. buying.
Before you lease, though, make sure you fully understand what you are responsible for on the car. If you damage the car, you will be required to pay to have it fixed. You will alsoo have mileage limitations for each year you lease. If you exceed that limit, you will have to pay extra money.
Pros of leasing a car
It’s a shorter-term commitment.
Many leases are over in two years or less. When the lease is complete, your financial obligation is complete.
Your monthly payments may be smaller.
Depending on the car you choose and your financial situation, you may be able to get a much smaller monthly payment when you lease vs. buy.
You aren’t responsible for maintenance.
When you lease a car, the dealer covers the routine maintenance costs like oil changes. You are still responsible for keeping the car maintained, but you don’t have to worry about any surprise expenses.
Cons of leasing a car
You’re not building equity.
Every payment you make when you buy a car is building equity in the vehicle. When you lease, your payments are just basically the equivalent of longer-term rental car payments.
You have mileage limitations.
Leased vehicles come with a mileage limitation. If you end up racking up more miles than your limit allows, you will be forced to pay more money per mile.
You have to turn the car in.
At the end of your lease, you turn the car back in. While this may be a welcome thought for some, you won’t have an asset to keep. The people who bought their cars will.
Buying a car vs. leasing a car
When you buy a car, you commit to a longer-term arrangement, but at the end of that arrangement, you own the car. As you make payments, you are building equity. However, you may have additional costs that people who lease aren’t required to pay. If you lease, yuo may be able to get lower monthly payments and avoid maintenance costs, but they will have mileage limitations and will not be building equity. At the end of the lease, you have to turn the car back in.
|Buying a car||Leasing a car|
|You own the car.||You have to return the car.|
|You can drive as many miles as you want.||You have mileage limitations.|
|Monthly payments may be higher.||Monthly payments may be lower.|
The final word
Deciding whether to buy or lease your car is fully dependent on your unique situation. If you’re looking to build equity and keep your car for a long time, you may want to buy it. If you’re someone who likes the newest things or are looking for a smaller monthly payment with less of a commitment, leasing could be the right fit for you.