What to Know About Leasing vs. Buying a Car
However, you slice it, getting a vehicle is a big investment with the potential to significantly affect your finances for years to come. However, there are a couple of different routes you can take to do so and it’s worth considering the pros and cons of each before making your next move.
Here’s what should know about leasing vs. buying a car.
Buying vs. Leasing
Purchasing typically means taking out a loan, then repaying that loan in fixed installments — plus interest — every month. You’ll then own the vehicle free and clear once the terms of the deal are satisfied. The typical financing contract runs five years, although it’s become more commonplace to see 72- or even 84-month loans.
(Side note: It’s generally advisable to keep loans as concise as possible to avoid paying more in interest over the years. Generally speaking, if you need to finance a car for more than five years to make the monthly payment affordable, you can’t really afford that car.)
Leasing a car is akin to renting, as in you’ll pay to use the car at whatever rate it’s projected to depreciate over the course of the lease term — usually two or three years. At the end of the lease, you can decide whether to buy the vehicle at its residual value or turn it in. This strategy tends to be a favorite of drivers who like to upgrade their autos every few years rather than commit to driving the same model for five years or longer.
Buying vs. Leasing a Vehicle: Other Factors to Consider
Of course, there are pros and cons to consider when you’re considering leasing vs. buying. Here are some key areas in which buying and leasing differ.
Money Down & Monthly Payments
Buying typically requires an ample down payment in the neighborhood of 20 percent, which helps you avoid becoming “upside-down” in the loan or owing more than the value of the car.
Leasing, on the other hand, usually comes with a lower down payment, sometimes even nothing due upfront. Unlike when it comes to buying, putting down a hefty payment on a lease can leave you in the lurch if the car gets stolen or totaled.
Maintenance & Customization
The duration of a lease usually coincides with the length of the manufacturer’s warranty, whereas purchased cars will eventually go out of warranty. This means buyers should prepare to pay for more repairs out of pocket.
However, there’s generally more freedom in terms of how you keep up with maintenance when you’ve purchased your car. As U.S. News & World Report illustrates lessees have to prove they’ve kept up stringently with required maintenance.
A big factor in whether leasing or buying makes more sense for you is how far you tend to drive on average.
Leases carry annual mileage allowances — like 10,000 miles, 12,000 miles, or 15,000 miles. If you exceed these mileage caps, you’ll pay an extra charge per mile, which can become expensive very quickly. It’s prudent to either negotiate the mileage cap upfront if you know you drive more than the allotted number of miles per year or consider the alternative of purchasing a vehicle.
Buying a car affords drivers the freedom to use the vehicle however they wish. Someone who commutes a long distance for work or likes taking weekend road trips may be better suited to buying than leasing for this reason alone.
Comparing these factors will help you determine whether buying or leasing a car is a better move for you based on your finances and lifestyle.
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