Leasing vs Buying a Car

FT Contributor  | 

When you need a new car, the conversation often focuses on things like gas mileage, vehicle capacity, or buying new or used. The first question to ask, though, is if you even want to purchase a car in the first place.

If you’re debating whether to lease your next car, here are some of the pros and cons associated with both leasing and buying a vehicle.

Leasing a Vehicle

Leasing a car consists of agreeing with a dealer to pay for the use of their vehicle for a set amount of time — usually around three years. Instead of purchasing the car outright, you pay for the difference between the current value of the car and its projected value when the lease ends.

For instance, if a car is currently worth $25,000 and it would be worth $15,000 at the end of your lease three years from now, you would pay $10,000 to lease it during that time frame.

Leasing has become an increasingly popular option in recent years, with more people choosing to, in effect, borrow their vehicles rather than own them outright.

Pros

As with most car-related matters, leasing has both an upside and a downside. Here are a few of the positive things that you can expect to get from a leased vehicle:

  • A lease typically comes with a lower payment: Since you’re only paying for the value of the car while you’re using it, lease payments are often lower when compared to buying a vehicle.
  • A lease gives you access to more valuable cars: Due to the fact that you’re only paying for the time you’re using the car, leasing allows consumers to gain access to cars that might otherwise have been too expensive for their price range.
  • A lease gives you a more dependable vehicle: Leasing a vehicle allows you to use a car that is still fairly new, and thus, less likely to need repairs. It will also still be under warranty and have all of the latest bells and whistles.
  • A lease allows for variety: Due to the limited lifespan of a lease agreement, leasing means you can count on getting a new vehicle every few years.

From greater dependability to lower payments, there are quite a few alluring factors that come with leasing.

Cons

Of course, there are also several important concerns that must be taken into account when leasing a vehicle:

  • A lease often requires a high credit score and stable income: Since the value of the car is so high and the dealer is only lending it to you, you will likely need a solid financial track record and a higher credit score to lease instead of buy a car.
  • A lease can be hard to terminate: Leases are notorious for being difficult to terminate partway through the agreement. While there are options, such as buying out or transferring a lease, it is often more difficult and complicated than simply selling a car.
  • A lease comes with mileage limits: Most leases come with a certain number of miles allowed, which can be restrictive if you use your car often or over long distances.
  • A lease eventually costs more: While it may be a cheaper monthly payment, you never actually pay off the car, and thus must continue paying for new leases.

From healthy finances to the fine print, there are certainly some important red flags that should be considered before signing off on a lease.

Buying a Vehicle

Despite the growing popularity of leasing, buying cars still remains the primary modus operandi for most people. When you purchase a car, it involves either paying for a vehicle with cash or taking out an auto loan with a bank, using the money to purchase the vehicle, and then paying the bank back (with interest) over the course of the loan.

For instance, if you want to buy a $15,000 car, you can pay $3,000 as a downpayment and then borrow the remaining $12,000 from a bank. After you’ve purchased the vehicle, you would then pay the bank back in monthly installments over the course of a few or even several years.

Pros

There are many pros that come with purchasing a car. For instance:

  • Buying means you own the car: You can customize and personalize the car to your liking.
  • Buying allows you to pay off the car: Owning the car means eventually you won’t have a payment and you’ll still have the vehicle.
  • Buying comes sans mileage limits: You can drive a purchased vehicle an unlimited distance.
  • Buying enables you to sell the car at any time: If you need cash, want a different car, or don’t need the car anymore, you don’t have to worry about a lease agreement when you decide to liquidate the vehicle for cold, hard cash.

From the freedom of ownership and unrestricted miles to the ability to pay off and even sell the car, there are plenty of positive reasons to purchase your vehicle.

Cons

As with a lease, there are also several negative aspects to car ownership that should be considered before signing on the dotted line:

  • Buying means you may not have a warranty: If you buy a used car, it may not have a warranty anymore.
  • Buying often means higher monthly payments: As long as your loan lasts, you’ll likely be paying a higher monthly rate.
  • Buying, especially used cars, can come with more repair costs: If the car is older, it may have more mechanical issues.
  • Buying can leave you driving an old car: If you purchase your own car, you won’t be able to swap it out for a new model as easily as a lease.

Whether you’re worried about repairs, higher payments, or being stuck with the same car for the next five to 10 years, there are certainly plenty of reasons to hesitate before buying a car instead of leasing.

What Option Is Best for You?

When it comes time to decide between a lease and buying a car, it can be helpful to ask yourself a few questions:

  • How far do you drive? Will mileage limits be a problem?
  • How much can you afford each month? Is a heftier car payment in the cards?
  • Do you have the credit history to be approved for a lease?
  • Do you want to invest in a car or are you okay with an endless cycle of lower payments?

Answers to questions such as these can help you narrow down your options and make it easier to choose between leasing and buying your next car.


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