Pros And Cons: Leasing vs. Buying A Car
Anyone who finds themselves in the position of needing to get a vehicle must first start their journey by answering one not-so-simple question: buy or lease?
Regardless of whether you lease or buy a car, it’s a commitment – and each choice comes with its own complications. Depending on your individual needs and budget, the decision isn’t always easy.
When it comes to leasing vs buying a car pros and cons, it really comes down to a number of personal and practical factors.
This guide was put together to help you figure out if leasing vs buying a car would be right for you – so you can have enough knowledge to make the right choice while making the car-buying journey an enjoyable experience instead of a stressful one.
Leasing vs Borrowing a Car: Pros and Cons
Let’s first make sure we know the difference between leasing vs buying a car, because the details are important.
Leasing a car is not that different than renting an apartment. When you lease a car, you’re never going to own it. At the end of the lease, you return the car to the lessor. You aren’t responsible if something goes wrong with the car, the dealer takes care of that.
When you buy a car, you have to pay the entire cost of the car with cash, a loan, the value of a trade-in or a combination of all of these. When you lease a car, you only pay the difference between the price of the car and the car’s expected value at the end of the lease period plus interest and fees.
How Do Leases Work?
Leasing involves signing a contract, typically for a few years, for a fixed monthly price to keep a vehicle and drive it as if it’s your own. After the lease is over, you don’t need to deal with selling an outdated vehicle – and you avoided having to pay the full sticker price the entire time you had the car.
It sounds straightforward and uncomplicated, but there are some important things to consider if you’re choosing to either lease or buy a car.
Pros of Leasing
- If you’re looking to lower your monthly expenses, a car lease payment will typically be lower than the monthly payment for an auto loan
- Your leased car is under warranty so the cost of any necessary repairs won’t come out of your pocket. The dealership takes care of these things.
- You get a shiny new car every two to three years. Vroom, vroom!
- You don’t have to worry about selling the car or the trade-in value. At the end of the lease, you hand over the keys and walk away.
Cons of Leasing
- If you run into financial trouble, you can’t sell the car and it can be hard to get out of a car lease.
- There is a limit to the number of miles you can drive the car over the term of the lease. If you go over the stated number of miles, you’ll be charged for each mile.
- You must maintain the car. This means not only adhering to the recommended maintenance schedule but keeping the interior of the car clean and undamaged.
- You are often required to purchase gap insurance.
- While the monthly payments for a leased car are often lower than those for a purchased car, over the long-term.
How Buying a Car Works
Between leasing vs buying a car, purchasing is likely the one most people are familiar with.
There are a few ways to buy a car. You can buy from a private seller for cash, from a dealer for cash, or from a dealer with financing. You can get financing from an online lender, a peer-to-peer lender, a bank, or the dealership. The interest rate you get on an auto loan will depend on your credit score.
Pros of Buying
- The car is yours in the same way a house you buy is yours. Once you pay the loan off, you will own the car outright.
- Because you own the car, you can customize it to your liking.
- There is no limit on the number of miles you can drive the car.
- You can buy a used car for cash which saves money over financing because you’re not paying interest.
Cons of Buying
- Your monthly payments will be higher than for a leased car.
- Any repairs and maintenance outside of any warranty period will be out of pocket.
- You have to sell, trade-in, or donate the car when you need a new one.
Leasing vs Buying a Car: Which is Right for You?
The pros and cons we’ve listed are general for those figuring out whether to lease or buy a car. But what about more specific situations? When does it make sense to lease a car and when is it best to buy a car?
You Should Lease If
- You own a business that requires you to have a car. Generally, you can deduct your lease payment (the actual expenses, not the standard mileage rate) from your expenses. If your business buys a car, you have to break out the monthly payment amounts between the interest you paid and the depreciation allowance. Car depreciation is written off over a period of several years so you can get a bigger deduction with a leased car.
- You see a good deal. Dealerships often offer car leases, especially for expensive cars, at bargain prices. This happens because high-end cars often have a higher resale value. The dealer can sell your leased car as a “certified pre-owned” car which is dealer fancy talk for a used car.
- You only need a car for a relatively short time. A lot of people think a car is an everyday necessity but that isn’t true for everyone. In a situation where you only need a car for a relatively short amount of time, it makes more sense to lease than to buy.
- You don’t drive that many miles.
You Should Buy If
- You have a sizable cash down payment. If you don’t have enough money for a hefty downpayment, you’ll have a higher interest rate on the borrowed amount.
- You have a good credit score. Your credit score determines the interest rate on your car loan. The higher your score, the lower your interest rate. And the lower your interest rate, the more money you save on a car loan or any other kind of loan. If you have a credit score of 760 or higher, that’s enough to get you the best interest rate on your loan.
- The car you’re going to buy has a high resale value. We all know how quickly cars depreciate in value but some cars hold their resale value more than others. You can get a ballpark for how much your potential car will be worth in X years time at Kelley Blue Book.
- You are good at and enjoy car maintenance and repairs. Some people love nothing more than popping the hood and fixing a problem themselves. If you’re one of them, owning a car that you can keep in good working condition for many years without having to pay a mechanic.
- You have a kid who will be driving soon and you want to pass your car down to them when the time comes.
- You drive a lot of miles. There is a limit to the number of miles you can drive a leased car. If you go over that limit, you’ll be charged per mile.
Now You’re Ready to Lease or Buy a Car!
The leasing vs buying a car pros and cons are important to know, especially since vehicles are such major purchases for most people – and vital for many households across the country.
Whether you decide to lease or buy a car, make sure you are thinking into the long term and taking into consideration any variable that might push you to one decision or the other.
Shop around, research the true value of a potential vehicle online, and don’t make any impulse decisions. Make an informed decision, and you won’t regret the consequences of the choice you made when you were considering leasing vs buying a car.