[ad_1]
:max_bytes(150000):strip_icc():format(jpeg)/when-leasing-car-better-buying-v1-735d3e7993d0435c8e1dcc0831af07bc.png)
Leasing and buying each have their pros and cons, so your financial situation and priorities will help you decide which is the right choice. For example, if you have a long commute or love road trips, financing and/or owning a car might be a better option. But if you’d like to drive a brand-new car every few years and you don’t drive a ton of miles, leasing could be a great fit.
Before you start checking out online ads and visiting dealerships, here’s how to decide if you should lease or buy your next ride.
Key Takeaways
- Leasing a car is like a long-term rental in that you pay a fee to drive a car for a certain length of time.
- Buying a car is paying to own it, whether you pay in full or finance the purchase with an auto loan.
- Leasing typically has lower monthly payments and lets you drive a new car every few years, but comes with restrictions on mileage and doesn’t let you build equity.
- Buying often costs more but allows you to build equity, have complete control over your car, and drive as much as you’d like.
Leasing vs. Buying a Car: What’s the Difference?
Leasing a car is similar to renting: You pay a fee in exchange for the ability to use the car for a certain amount of time, such as three years.
During that time, your lease agreement dictates how you can use the vehicle, such as whether you can modify it and how many miles you can drive. At the end of the lease period, you return the car, hand over the keys, and stop making payments. Depending on your agreement, you may also have the option to buy the vehicle at the end of the lease period.
Buying a car means you own it. If you pay cash, such as for a used car, you might own your vehicle outright from the start. If you finance the purchase with a car loan, you’ll build equity in the vehicle as you make payments. At the end of the loan term, you’ll own it outright and you can choose to sell it, keep it, or trade it in toward the cost of another vehicle.
Either way, when you buy a car, you can drive as many miles as you’d like. You can also make modifications to better suit your needs, such as upgrading a vehicle’s suspension or getting a custom paint job.
| Leasing | Buying |
|---|---|
| Pay to drive a car for a specific amount of time | Own and drive for as long as you want |
| Payments don’t build equity; you don’t own the car | Loan payments build equity until you own the car outright |
| Lower monthly payments and low or no down payment | Higher monthly payments and higher down payment typically required |
| New car every few years, on a specific timeline | Can sell or trade in anytime, or keep as long as you’d like |
| Warranty-covered repairs | Typically need to cover maintenance and repair costs yourself |
| Restrictions on mileage and allowable modifications | Total control: You can drive as much as you want and make any changes you desire |
| Early cancellation penalties | Flexibility to change vehicles as needed |
| May have special fees at lease end, such as for damage beyond normal wear and tear | No special fees, but depreciation affects value over time |
Pros and Cons of Leasing
At first glance, leasing might seem like a great deal. You get a new car every couple of years, and the monthly payments you’ve seen advertised seem cheaper than what you’d pay for a car loan.
Pros of Leasing
- Lower monthly payment: A lease payment is typically cheaper than a monthly auto loan payment for the same vehicle. That’s because you’re only paying for the expected depreciation of the vehicle during the lease period, rather than the full purchase price.
- No down payment: You typically don’t need to make a down payment, although you can if you’d like to reduce your monthly payments (you won’t save any money on interest if you do that, however, so it doesn’t usually make sense to put down a down payment).
- New vehicle every couple of years: If you love that new car smell, a lease lets you enjoy it on a regular basis. When your lease ends, typically after two to four years, you can return the car and pick up a new one.
- Warranty-covered repairs: Many new cars are covered by a factory warranty, and some dealer warranties may cover other maintenance and repairs.
- No need to resell: When the lease ends, you can simply walk away—no need to negotiate with a dealer for a trade-in or deal with the hassle of selling the car yourself, although you can trade it in if you wish.
- Easier business deduction: If you use your leased vehicle for business purposes, you can claim the costs as a tax deduction from your business income.
Important
Before you sign a lease, make sure you fully understand the tradeoffs.
Cons of Leasing
- No equity: Your lease payments are like rent. They cover the costs of depreciation during the lease, but they don’t help you build any equity or ownership. At the end of the lease, you don’t own the vehicle (though you may have the option to purchase it).
- Restrictions on use: Leases typically cap the number of miles you’re allowed to drive each year, such as 10,000 to 15,000. You’re also not usually allowed to make modifications and you’ll need to pay a fee for any damage beyond what the leasing company considers normal wear and tear.
- Early cancellation penalties: If life happens and you need to end a lease early, such as to get a vehicle that can accommodate carseats, you may pay hefty fees. But you might be able to avoid them by trading the car in.
Pros and Cons of Buying
It often costs more to buy a car than it would to lease the same vehicle, both in terms of a higher down payment and higher monthly payments on a car loan. But it’s important to weigh the pros and cons to understand whether that extra cost might be worth it for you to enjoy the benefits of owning a car, whether you buy it outright or finance it with a loan.
Pros of Buying
- Ownership and control: Every payment on your auto loan builds equity, and you own the car outright once you pay off the loan (or from the start, if you paid cash). You can drive as many miles as you’d like and modify your car in any way you want.
- Option to sell, trade, or keep: Whenever you’re ready, you can choose to trade in your car toward a new vehicle, sell it, or give it to a family member. You can also aim to drive it as long as it lasts, with no more payments once your loan is paid off.
- Flexibility: It’s typically easier to get out of a car loan than a lease. If your needs change and you want to sell the car or trade it in, you can usually pay off your loan anytime without incurring pre-payment penalties.
Cons of Buying
- Higher costs: Your loan may require you to pay a down payment, such as 20% of the purchase price. Monthly loan payments may also be higher on an auto loan than they would be to lease a comparable car.
- Depreciation: A 2024 AAA analysis estimated that a new car would lose an average of $4,680 in value per year over the first five years and 75,000 miles due to depreciation. That was nearly half the average MSRP used in the study.
- Maintenance and repair costs: Unless you buy a new vehicle covered by a factory warranty, you’ll need to pay for regular maintenance and to fix any damage.
Leasing vs. Buying: How to Decide
Whether you should lease or buy depends on your situation and needs. If you need a new vehicle at a lower cost and don’t plan to drive more than 10,000 or 15,000 miles per year, leasing could be a good option.
Leasing a car allows you to drive a new vehicle for less than it would cost to buy (or finance) it. At the end of your lease, you hand over the keys without the hassle of negotiating a trade-in or selling a car yourself. You can then start a new lease in a brand-new vehicle.
But if you’ve saved up enough for a car loan down payment and value the flexibility and control that come with ownership, buying could be a better fit.
After all, a lease is like a long-term car rental in that you’re paying to drive the car, not building any equity or ownership of it. At the end of the lease, you don’t own the car. Most leases also cap the number of miles you can drive each year and don’t allow you to make modifications.
Tip
If you decide that buying a car is a better option for you, use our auto loan calculator to consider your options based on your purchase price, down payment, term, and credit score.
The Bottom Line
Leasing a car is like a long-term rental, and may be a cheaper way to drive a new vehicle. Buying a car gives you ownership and control, but it may cost more upfront and, if you finance a vehicle, your monthly loan payments may be higher than leasing. Buying and leasing are both great options—neither one is better in every case. The best choice for you depends on your lifestyle and financial situation.
[ad_2]
Source link