Should I Buy or Lease A New Car?
If you’re in the market for a new ride, you already have plenty to think about: Car or truck? New or used? Cash or finance? Dealer or private seller? The options are virtually endless. While it can be overwhelming to consider all these options, soon enough the dealer will ask you: how will you be paying today?
You don’t want to ask the car salesman what leasing is; you don’t want to listen to their pushy spiel about how great leasing is. You want the facts and that’s what we’re here to give you.
What is Leasing?
For some reason, you don’t hear much about leasing cars. Most people are comfortable with leasing an apartment or home, yet their immediate inclination is to buy a vehicle. In many cases, this makes complete sense; however, there are also times when leasing is the superior option for your circumstances.
Leasing a car means that you never really own the car. You effectively rent it from the car garage with set criteria for a set amount of time. A car lease agreement will typically ask that you pay $X a month, over the span of 3 years, driving it no more than 12,000 miles a year. At the end of the 3 years, you have the option to pay a lump sum and buy the car outright, or give it back to the dealer.
The more miles you drive and how you use your car will contribute to how much you pay, so they can stack up if you use you’re an Uber driver or travel a lot for work. and these fees don’t include all the other costs of running a car, like taxes and insurance.
Pros of Buying
Most people end up buying a new or used vehicle because of the many advantage buying vs leasing brings you. Here are the top reasons to consider buying:
- Ownership: The most obvious pro of buying is that you get ownership of a vehicle. Not only does it feel good to own something, but this also increases your personal net worth through additional equity. You can do whatever you want with the vehicle and choose to sell or trade whenever you see fit.
- Flexibility: Buying comes with a lot of flexibility. In addition to the flexibility mentioned in the previous point, buying also enables car owners to make cosmetic changes and additions to the vehicle. Want to add an accessory? You can add as many as you want and nobody can tell you otherwise.
- Resale: Ultimately, you get the advantage of resale value when you decide you’re done with the vehicle. While the resale value will be a fraction of what you paid on the front end, it’s nice to know that you can recoup some of your expenses and use that money to buy your next vehicle.
- One-time payment: If you choose to pay for your car in cash, congratulations – you’re done! You no longer have to worry about monthly payments or informing the car dealer if you move or change your bank card.
Cons of Buying
Depending on your circumstances, buying may not be the best option for you. Check out the disadvantages of buying:
- Down payment: The biggest disadvantage of buying outright is that it’s costly. If you pay in cash, you obviously have to fork over the entire amount. But even if you finance the vehicle, you’ll need to pay a hefty down payment, taxes, registration, dealer fees, and other add-on expenses.
- High monthly finance payments: Generally speaking, finance payments are higher than lease payments. This is because you’re paying off the entire purchase price of the vehicle, not just the vehicle’s depreciation during a lease term. In some cases, the difference will be nominal, but in others, it can be a few hundred dollars per month.
- Depreciation: Buying a car, instead of leasing, means that you take the full hit of depreciation. As soon as you drive your beautiful new ride off the garage lot, it depreciates 20%, but you still have to pay the full sticker price
- Interest payments: Finally, if you finance your purchase, you’ll have to pay interest over the life of the loan. Depending on the length of the loan, amount, and rate, this can easily add up to a few thousand dollars.
Pros of Leasing
Now let’s shift our attention to leasing. While it certainly doesn’t get the same amount of attention as buying, leasing comes with a number of pros. They include:
- Low upfront cost: The beauty of leasing is that the upfront cost is extremely low (when compared to buying). You’ll typically be asked to write a check for the first month’s payment, a refundable security deposit and a couple of other fees. It’s not cheap, but it’s certainly not as expensive as buying.
- Low monthly payments: As mentioned, lease payments are generally much lower than loan payments. With a few hundred extra dollars in your bank account each month, your budget will be able to breathe a little more.
- Credit: Leasing a car can be great for your credit (provided you make the payments every month). Banks take car payments into account, so it can be a great way to build up credit.
- A new car every 3 years: Getting a new car every 3 years? Sounds pretty sweet. If you’re bored of the vehicle at the end of your lease, you can walk away. People who love driving different vehicles every few years find this aspect of leasing very desirable.
Cons of Leasing
If you stopped with the pros, everyone would be leasing their vehicles. As you probably guessed, there are also some cons. Here are the ones you should know about:
- No ownership: The biggest disadvantage of leasing is that you aren’t building any equity. Your monthly payments simply allow you to use the vehicle. You won’t be able to recoup any of these payments with a future resale. If you decide to give the car back at the end of your leasing term, you’re left with nothing.
- Mileage limitations: Most leases will limit the number of miles you can drive. This is typically between 12,000 – 15,000 miles per year. If you drive a lot, you could easily surpass this threshold. As a result, you’d have to pay additional charges.
- Inability to customize: Finally, there’s no ability to customize your vehicle if you lease it. Everything must be the same at the end of the lease, which means there’s very little opportunity to make the car feel like your own. For some people, this is a big deal. For others, it doesn’t really matter.
So, What Should I Do?
If you’re in the market for a new vehicle, it’s important that you weigh your options. That means: do your research. A quick Google search will bring up a ton of incisive articles about leasing vs buying a car. While buying often makes more sense, leasing is a hidden gem that few people ever give consideration. It gets a bad rep, that you’re ‘throwing money down the drain’, but the depreciation on a vehicle means that by buying it you’re really doing a similar thing. Your choice is highly personal and will depend on a lot of factors, so don’t be afraid of spending some time analyzing your options.
Whether you decide to buy, lease or finance, getting your new car fully insured is just as important. Just like the buying vs leasing conundrum, it can also be difficult to decide on the right insurer for you. Read our guides to insurance companies on our panel and then get a free insurance quote today. You can compare insurers for free and buy a policy today!