If you are considering acquiring a new car, one of the first questions that comes to mind is whether its better to lease or purchase it.
Every person’s situation and preferences are different and the decision you make will be dependent on a number of factors.
In order to ascertain which the best option for you is, we will take a detailed look at what is involved in leasing vs. buying.
Why Lease a Car?
Taking out a car loan or buying a car outright isn’t the only way to acquire a new vehicle and many people are now veering towards leasing vehicles.
At one point leasing a car was something only luxury car buyers and corporate customers opted for. However, car leasing is now an increasing trend that’s evident in every single segment of the modern day car industry- ranging from families leasing SUVs to college graduates leasing sub-compacts.
Vehicle prices are constantly on the rise and this makes leasing a more feasible option for many people.
Leasing can allow a buyer to acquire a much more expensive car than they might otherwise have been able to afford.
Little surprise then that almost one third of all vehicle sales today are accounted for by car lease deals.
How to Lease a Car
A car lease is the arrangement in which you pay the leasing company for the right to use the vehicle you have leased from them.
The monthly payments do not give you ownership (build equity) for you in that vehicle.
Rather, as you make all your monthly payments you’re only upholding your side of the deal that allows you to drive that vehicle for a specified period of time, generally two or three years.
Let’s take a look at the pros and cons of buying and leasing a car. Eventually, the decision to buy or lease generally comes down to how you prefer to pay for things and the lifestyle you lead.
The Pros of a Lease
- Lower monthly payments with no/low down payments.
- You can drive a much better car for less money in the best lease deals.
- Lower repair and maintenance costs when you are under the vehicle’s included factory warranty.
- No trade-in hassles at the end of your lease period.
- It’s easier to transition to a new vehicle every two or three years.
- You pay much less sales tax.
The Cons of a Lease
- You don’t own the vehicle at the end of the lease period (most companies give you the option to buy).
- The mileage is typically restricted to 12,000 miles/year (you have the option to buy extra).
- You might find lease contracts very complex and filled with technical jargon.
- You’ll end up paying more in the long run for your leased vehicle than you will if you purchase a car and keep it for a number of years.
- There is the possibility of facing excessive wear-and-tear charges, which can be an unpleasant surprise at the end of your lease.
- You will find it expensive to terminate the lease early if your requirement changes.
Why Buy a Car?
When you buy, you actually own that vehicle outright once the loan has been paid off (until that point, the lender owns the car).
For the entire duration of the loan period, you also gain equity in the vehicle as long as all your payments outpace the car’s depreciation. At the end of the car loan period, the vehicle belongs to you, and the lender will transfer its title over to you.
The Pros of Buying
- You can modify the vehicle as you please.
- You’ll save more money over the long term if you purchase a car.
- No restrictions on how much you can drive; no excess mileage penalties.
- More flexibility as you can sell the car when you please.
- You can use your car as a trade-in on your next vehicle purchase.
The Cons of Buying
- Higher down payment
- Monthly car payments are much higher than any lease payments.
- You’re entirely responsible for repair costs post the warranty period.
- You face potential selling or trade-in hassles when you decide to buy your next vehicles.
- When you buy any new car, you’re open to fluctuations in its market value whenever you decide to trade it in or sell it.
- More cash is tied up in the car.
Leasing vs Buying a Car – Which One Works Best?
When it comes to the lease vs. buy car decision, there’s no thumb rule you can follow.
You need to carefully consider and peruse all of the pro, cons, as well as the costs involved and then determine which best suits your situation.
Take your budget in consideration and be objective about your lifestyle, mileage needs, and your credit history before making the final decision.