To buy or to lease? That is the question.
If you’re on the hunt for a new vehicle, you may be wondering what your options are. Of course, there is the matter of payment, but beyond that there is so much more to consider before you can really trust that you’ve made the right decision in terms of whether to buy or lease a vehicle.
The good news is that you don’t need to pay an arm and a leg just to secure a new ride. There are a wide variety of options available, no matter your budget. However, before you can begin searching for that perfect vehicle for your budget, you’ll first need to decide whether buying or leasing is the right choice for you.
There is a world of difference between buying and leasing a vehicle. Which of these two makes the most sense for your financial situation will depend on several factors. Generally, neither buying nor leasing is better than the other. But, depending on your unique financial situation, one may serve you much better in the long run. Your long-term financial goals should certainly play a role in your decision-making when it comes to whether to buy or to lease.
If you are focused on cost savings now, for instance, you may find leasing a more suitable option. No matter your financial situation, it helps to weigh the pros and cons of both buying and leasing before you start shopping. Doing so will give you a better idea of what to look for when it comes to your new vehicle.
Buying vs leasing a vehicle
It may come as no surprise that the main difference between buying and leasing a car is who owns it. When you decide to purchase a vehicle, you will go through a lender to secure the money to purchase the vehicle, after which it will be your responsibility to pay it through in its entirety. To the contrary, by leasing a vehicle, the dealership retains ownership, and you are merely renting it from them. Essentially, when you lease a vehicle, you are paying the depreciation value of the vehicle. This means that you will face a lower monthly payment, you have no claims to ownership. There are benefits and risks to this.
What are the benefits of buying a vehicle?
Buying a vehicle comes with plenty of benefits, some of which you perhaps hadn’t anticipated. For example, did you know that buying a vehicle might help you save money on your taxes? There are plenty of factors to consider when choosing to buy or lease. Buying a vehicle may be a wiser option for you for several reasons:
It’s new
There’s just something about that new car smell and shiny paint job that seems impossible to resist. Purchasing a new vehicle can bring on a big sense of accomplishment. There is also a sense of security with a new vehicle, for several reasons. For one, you know your vehicle has never been in any accidents. There will be no dings or scratches and your warranty is very much intact. And if you’re purchasing a new vehicle, you can remain confident that you are likely dealing with the latest in safety features, giving you confidence as you drive.
It’s yours
Drivers who choose to lease miss out on owning their own vehicle. They may pay thousands of dollars over a period of years and at the end not have much to show for it. Ownership allows for a greater sense of freedom. You can do whatever you want with your new vehicle when you choose to purchase rather than lease. This means you can make customizations as you see fit, and even choose to sell your vehicle if you grow tired of it after just a couple of years. Or, if you drive long miles regularly, owning your car gives you the freedom to do so without additional costs. This type of flexibility is one of the biggest reasons many drivers choose to own rather than lease.
Insurance savings
Did you know that insurance premiums are often lower for those who buy instead of lease? If you are hoping to save money on your insurance plan, buying may be the better option.
What are the benefits of leasing a vehicle?
There are plenty of situations in which leasing a vehicle might be a better option than purchasing one. Leasing a vehicle is becoming increasingly popular for several reasons:
Low monthly payments
The initial costs associated with purchasing a new vehicle is higher than leasing it. This can include a down payment, as well as a monthly payment that is higher than a lease payment. In addition to lower monthly payments, drivers who choose a lease can also save money on the sales tax of the vehicle. These kinds of savings are an attractive benefit for drivers on a budget. In fact, there are plenty of models to choose from that will cost within the $200 to $300 per month range, making leasing a car affordable enough for everyone from college students to retirees on a fixed income.
When it comes to savings on any vehicle, maintenance costs will always be a factor. If you are currently leasing a vehicle, though, chances are good that you are covered under the vehicle’s warranty in the event of any major mechanical issue. This means that you won’t be dishing out thousands of dollars on costly repairs.
Newer options
When you purchase a vehicle, that vehicle is yours until you sell it or simply stop using it and purchase another. Leasing a vehicle, however, means a commitment of only a few years, meaning you can trade it in for a newer model once your lease is up. The prospect of driving a brand-new vehicle every few years is appealing to some, making leasing a great option for the trendy driver. There are even instances where a newer car might be an advantage professionally, such as if you entertain clients regularly.
When it comes to deciding whether to buy or lease a vehicle, it’s important to consider what costs you may incur in the future. This applies to maintenance and repairs. When you purchase your vehicle, you should expect to pay costly maintenance and repair bills over time, which can add up to thousands. With a lease, you are less to face any major issues with your vehicle throughout the lease period.
Should I buy or lease a vehicle?
Still on the fence about whether to buy or lease a vehicle? Asking yourself these questions beforehand may help you decide which option is best for your financial situation.
“Can I afford to buy?”
Purchasing a vehicle is not a decision to take lightly. This type of commitment has serious financial repercussions, meaning you’ll need to be absolutely sure beforehand whether you can realistically afford to make the payments. Not only can failing to make payments damage your credit score, but you also run the risk of having your vehicle repossessed if you don’t pay up. Think long and hard about whether you can fit a monthly car payment into your budget. If the answer is no, you may decide a lease is the answer.
“How often will I drive it?”
There are limits to how much you can drive when leasing a vehicle as opposed to owning it. Unfortunately, that may mean that cross-country road trip you had planned may not be the best idea, after all. When leasing a vehicle, you will likely be allotted only a few thousand miles on the vehicle per year. Any additional mileage is likely to cost you. If you travel frequently by car or have big travel plans for the future, you might find that leasing a vehicle costs much more than you anticipated.
Another thing to look out for is the wear and tear on a leased vehicle. While dealerships are prepared for normal wear and tear on a vehicle, there’s a chance that you may face extra costs if your dealership deems your lease beyond what is “typical”. This is where things can get tricky. While it’s likely that you will take good care of your leased vehicle, it is crucial that you are aware that unexpected costs may arise when you lease.
“How is my credit?”
What type of interest rate you qualify for when buying or leasing a vehicle will largely depend on your credit score. Lenders want to know that you are capable of making your monthly payments on time. This is something a good credit score can demonstrate. But aside from securing the best deals on an interest, your credit score can prevent you from getting those advertised deals altogether. Those “zero interest” sales, for instance, might not even be available to you if you don’t have excellent credit. You may want to consider enlisting the help of a co-signer if you have less-than-good credit but still want to qualify for a great deal.
How to determine lease payments
Deciding to lease is one thing but deciding what kind of lease payment you can afford is a different situation entirely, and one that may require a bit of soul-searching to get right.
Unfortunately, what type of lease payment you’ll be working with is hard to determine until you know all the details about the vehicle you intend to lease.
Here a few factors that will determine your monthly lease payment:
Price of vehicle
What is the cost of the vehicle you’ll be leasing? Your dealer likely sets this price, though you can do your own research online before shopping.
Lease period
How long will you lease the vehicle? Whether 36 months or 48 months, you can’t begin to determine your lease payment until you know how many years your lease will be.
Mileage
Figuring out how much you plan to drive your car is important. Typically, you’ll receive about a 10,000 mile to 12,000 mile allotment per year for the course of your lease. If you require more than this, you can expect your monthly payments to go up. The same goes for wear and tear on the vehicle. These extra charges can add up unexpectedly, which is why you read through your lease agreement thoroughly.
Final word
Deciding between buying or leasing is a big decision many adults will face throughout their life. While every person is different and has different needs when it comes to their vehicle, the importance of research can’t be denied. Weighing the pros and cons of each both buying and leasing ensures you make a decision with all the knowledge at hand, helping you make a wise choice for your now and your future. By coming armed with information, you are less likely to face surprise when the day comes to shop for that new car or truck.
