Leasing vs. buying a car: that is the question. Considering leasing vs. buying a car is tough stuff. The decision is complicated by a person’s financial situation, acknowledgment of how they plan to use it and where they hope to go (i.e. commute to work, chauffeuring the kids, road tripping, errands, Tinder dates, etc.) Like many other things, there are numerous positives and negatives to leasing and/or buying a car. This post is for the people who want someone to keep it real and break it down, plain and simple.
About Leasing a Car
Approximately one-third of vehicle sales today is explained by people leasing cars. Historically, leasing was reserved for luxury car enthusiasts, but now we are seeing more college students and new families showing interest. When you decide to lease a car, you only finance the depreciation that occurs during the lease term + fees. In other words, you pay the difference between the car’s price and what it’s expected worth at the end of the lease (aka residual value). Usually, the lease term is three years and there is a 12,000-mile/year limit. Lease contracts are pricey to break and so are the charges associated with going over your mile/year limit.
- You are driving the latest, luxury vehicle
- Newest safety features/technology
- Lower repair costs (since you may still be under the vehicle’s factory warranty)
- You can easily transition into new car every two or three years; no trade-in hassle after the lease is over
- Your customizations and modifications go bye-bye when your lease term has ended
- It is challenging (and almost impossible) to maintain a “newly leased clean” standard – you are at greater likelihood of incurring wear-and-tear charges
- Lease contracts are confusing and wordy
- Ultimately, you will have no equity in the car
- Despite lower monthly payments compared to buying a car, you pay a substantial down payment
- Mileage limits (Between 9,000-15,000 miles/year; usually 12,000) with fees per extra mile
- It is costly to terminate lease
About Buying a Car
Buying a new or used car has clear benefits in regards to overall long-term cost and the flexibility to do what you want with your car when you please. When you purchase a car, the value of the loan is determined by the entire cost of the vehicle minus the trade-in value and down payment. The plus side, once the car is paid for, you can forget about monthly car payments looming over you. You can redirect your savings to other parts of your life and towards keeping your vehicle in pristine condition. If you are caring for a family, buying a car is the way to go because you have virtually endless miles to rack up and live guilt-free when achieving that lived-in feel.
- You own the car when the loan is paid off, full stop
- Gaining equity in the car as long as your payments outpace the vehicle’s depreciation
- No extraneous costs…just the basics (i.e. gas, insurance and repairs)
- No mileage limit
- Modify and customize to you heart’s desire
- Uncertainty in regards to how the ever-changing market conditions will impact the value of your car – in other words, you may end up having negative equity
- It is difficult to save up for that hefty down payment (usually between 10-20%)
- When you do choose to go out with the old and in with the new, you run the risk of losing hard-earned money when trading a car in to a dealership. What a convenient time to mention that TRED can help sell/buy used cars 🙂
Leasing vs. Buying a Car
The bottom line is that there are good and bad aspects of leasing vs. buying a car. Making either decision is neither straightforward nor quick. The reality is that we’re all leading different lives and it just comes down to what works best for you (and your wallet). You do you.