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, and figuring it all out can be overwhelming. But in the end, the most stressful moment may be when the dealer asks you that ominous question: how will you be paying today?
You need to know your answer long before you set foot on the lot, so it’s important to research your options and weigh the pros and cons of buying vs. leasing ahead of time. It’s a bad idea to ask a car salesman what leasing is because you don’t want to listen to their pushy spiel about how great it is and end up having them take advantage of you. You want the unbiased facts about buying and leasing and what those options would mean for you. That’s exactly what we’re here to give you.
What is Leasing a Car?
You don’t often hear much about leasing cars, so a lot of people are unfamiliar. Most people are comfortable with leasing an apartment or a 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 a better option for you and your circumstances.
Leasing a car means that you never really own the car. Instead, you effectively rent it from a dealership 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 for your lease. For example, if you’re an Uber driver or if you travel a lot for work, the miles can add up quickly, meaning you’ll pay a higher price. It’s also important to keep in mind that these fees don’t include all the other costs of driving a car, like taxes and insurance, so you’ll need to keep those costs in mind when planning your budget.
Pros of Buying a Car
Most people end up buying a new or used vehicle because of the many advantages buying vs. leasing brings you. Here are the top reasons to consider buying your next vehicle:
- Ownership: The most obvious pro of buying is that you get ownership of a vehicle. This will increase your personal net worth through additional equity, and you can do whatever you want with the vehicle with no rules and regulations, choosing to sell or trade whenever you see fit. Plus, it just feels good knowing you have something that’s all yours!
- Flexibility: Buying comes with a lot of flexibility. As mentioned above, you can sell or trade whenever you’d like, but another thing to keep in mind is the ability to make changes and upgrades to your vehicle. Buying enables car owners to make cosmetic changes and additions to their vehicle, so no one can keep you from building your dream ride, decked out with your favorite accessories.
- 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 a Car
Depending on your circumstances, buying may not be the best option for you. Some of the disadvantages of buying include:
- 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 small, 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. The value of your beautiful new ride can depreciate by as much as 40% within just one year depending on the make and model.
- 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 a Car
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 advantages. 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 – just make sure you make your payments on time.
- Vehicle Variety: 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 a wide variety of vehicles and switching it up every few years find this aspect of leasing very desirable.
Cons of Leasing a Car
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 5,000 and 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, getting that personal touch is a big deal, but it may not bother you. Regardless, it’s an important factor to consider before you make your decision.
So, Should You Buy or Lease?
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 show you tons of helpful 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 it’s a smart choice for certain people and situations. At the end of the day, 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. Luckily, we’re here to help– compare rates and get a free car insurance quote today!
Leasing vs. Buying FAQs
Is It More Expensive to Insure a Leased Car?
It is often more expensive to insure a leased car because you’ll be required to buy collision and comprehensive coverage, in addition to the liability insurance that’s required by your state.
Should I buy my car after lease?
When you buy out a lease, you’ll be asked to pay the price set at lease signing for the car’s “residual value” (the predicted value of the car at the end of the lease). If the predicted residual value is more than what your car is actually worth at the end of your lease, it’s probably better not to buy it. If the residual value is less than the car’s true current value, then it could be a good idea to buy out your lease.
How many miles can you put on a leased car?
Most leases have a mileage limit between 5,000 and 12,000 miles per year, but it will change depending on your specific lease. The important thing to keep in mind is that if you go over the specified mileage in your lease, you’ll owe extra money at the end of the lease.
Do you need good credit to lease a car?
Having a great credit score may help you get a lower rate on your lease, but it’s not a requirement to lease a car.