Car - leasing vs buying | Which is better?
Updated: Jul 24
Are you in a dilemma when it comes to buying a car? I often envied my friends and neighbors leasing brand-new cars every few months. But I researched the pros snd cons of leasing and buying. Read more to get the real facts about what type of buying suits you and your lifestlye.
Buying vs. Leasing a Car
Whatever car or any other vehicle you would like to buy, deciding whether to buy a new car or lease comes down to one's needs and lifestyle. Are you a driver who changes a car a lot? Do you hate taxes and car maintenance? Let's look into the what are pros and cons between buying and leasing. We will also look at what are the questions you should ask yourself before going ahead and buying your next vehicle.
What is car leasing?
Leasing a car means you basically pay a monthly payment for driving a car. This monthly payment for leasing a car is lower than what you would pay if you own a car auto loan. Leasing does not involve any auto loan. You basically pay a low monthly payment which is less and affordable compared to paying a loan of full car value.
The main difference is that when your lease ends, you have to give the car back to the dealer and you are no longer the owner of the car.
Should You Buy or Lease a New Car?
When I was thinking of buying my first car, I wanted to own a nice sedan. I don't even know that there is a leasing option. I could have used the leasing option and paid a lesser monthly payment but then I don't want to give my car back when the lease expires. At the same time, the monthly payment was attractive.
You see the dilemma here and sure owning a car feels good but what if you don't want to pay a higher payment for a car loan and pay an interest especially when your credit score is low.
Let's look at the pros and cons of leasing and buying options for your next car.
Which finance option will make sense for your situation?
If you want to own a car for a long time say 15 years and you tend to have a personal connection with your car or something like that, you should be ready to answer the two questions? Are you willing to pay the full loan that you will take for the new car? What are your driving needs? Are you a regular commuter or need a car just for running errands?
According to a survey says that only 6% of households leased a car.
Here's a quick look at both leasing and buying a car:
Image Courtesy: businessinsider.com
Leasing vs. Buying a Car: What’s the Difference? (watch this video and learn)
Pros and cons:
Pros and cons of leasing a car:
No or low down payment
Usually covered by warranty
Lower monthly payments
No upfront sales tax fees
No depreciation concerns
Excess mileage penalties
Fees for excessive wear and tear
Early lease termination fees
Generally higher insurance premiums
Pros and cons of buying a car
Eventual ownership of a car
No mileage limits
Ability to sell car anytime
Freedom to customize/modify
Generally lower insurance costs
Unpredictable resale value
Higher monthly car loan payments
Post-warranty maintenance expenses
Depreciates over time (20% once you buy a car!)
Large down payment
You can decide if you need to lease or buy by using the handy calculator.
Ask Yourself These Questions:
1. How much do you drive?
On average anyone who leases a car can drive a maximum of 15,000 miles per year and maintain the car in good shape. If you drive only let's say 8,000 or drive more like 25,000 miles, you should negotiate upfront with the dealer about the extra cost for additional miles. You will typically be charged anywhere from 15 to 25 cents per extra mile that you have driven that year.
2. Do you need your cash?
With the leasing option, your initial deposit and the monthly payment thereafter are usually less compared to when you buy a car with a car loan.
3. Do you worry about your car's resale value?
4. Do you use your car for business purposes?
5. How stable is your life?
6. Do you trust the company you would be leasing from?
7. How often do you want a new car?
Buy a car if you plan to keep it for a long time, customize it to your style or if you drive a lot of miles such as commuting, frequent road trips, etc...
Nevertheless, buying is cheaper than leasing in the long run. Before you go, take a look at this nice video that puts everything in one video easy to understand.