Getting a car can be a big decision. Even as public transportation becomes more ubiquitous, getting your first car is still a rite of passage in America.
Whether you’re looking to get your first set of wheels or your tenth, actually getting the car can be challenging and confusing. You’ve got a multitude of different brands to choose from and each brand has a number of different models.
Moreover, those models have trim levels and different features. But maybe you know what you want. Even if you do, paying for a car can be equally as confusing. Financing, APR, insurance, wheel and tire; there are a variety of different things to think about when buying or leasing a car.
One of the more important and impactful decisions you’ll make is whether to buy a vehicle outright or if you’ll lease. There are lots of great reasons to do both and some important considerations as well.
Let’s take a look at some of the pros and cons of both buying a vehicle and leasing one.
Questions to Think About
Before we get into straight pros and cons, it is helpful to think about a few things that can help you make a decision to buy or lease.
What are you going to use the car for?
Typically, we purchase or lease cars for a practical purpose. You’ve got to get to work, pick up groceries, run errands and drop the kids off at practices.
Understanding how you’ll use your car will help ensure you get the right vehicle for you and your lifestyle. Getting a sports car and hoping to fit your four kids isn’t going to work.
More importantly, understanding what you’ll use the car for will also help you decide if you should lease or buy. If you’re driving long distances fairly frequently, a lease may not be for you.
Leases come with very strict mileage requirements. Alternatively, if you’re just driving around your town and really need low payments from month to month, leasing is a good option.
What’s your budget?
Once you understand what you’ll use the car for, take a hard look at your budget. Realistically, how much can you commit to paying each month?
In both purchases and leases, you should be prepared for an extended financial commitment. The difference is the amount.
Leases tend to cost less each month, but may require a down payment for the car that could be larger than what you’d put down if you purchased. Buying a car will lower that monthly payment but you’ll have to pay the whole amount you’re contracted for.
Lease or Buy – Pros and Cons
Monthly payments for leasing tend to be lower than purchasing a vehicle and you may not have to send in a large down payment. Those payments, however, don’t necessarily go anywhere.
You can think about leasing a vehicle as being like an extended rental. You’re paying to use the car, then you return it.
Warranty & Maintenance
With a lease, you’ll likely turn in your car before the warranty runs out, meaning that the cost of ownership is way down. You’ll still be responsible for regular maintenance like oil changes and tire rotation.
However, you’ll be able to avoid very costly repairs and if something does happen, dealers often offer great deals to their lessees. The con is the same as above – you’re not paying into anything.
Leasing means you’ll be getting the most up-to-date car you can and can get a new one sooner. If you’re someone that absolutely needs to have the newest thing or if you just plain like having a new car, leasing is the way to go.
Possibly the biggest con of leasing is that you don’t own a leased car. Leasing is essentially an extended rental. This means that you do not have an asset to consider, just liability.
Purchasing a car allows you to drive as far as you want. But leasing has very strict limits. If you go over the mileage limit and decide to turn in the lease as opposed to purchase the vehicle, you could be on the hook for thousands of dollars in fees.
Buying a car provides at least some cash value for your next car. Leasing does not. This isn’t as large a factor if you know that you can afford whatever vehicle you’ve selected. Still, there is something to be said for having a possession.
You’ll often have to pay a much larger upfront cost when purchasing a car as opposed to leasing one. To account for this, leasing has strict requirements, as we’ve spoken about.
If you’re looking for a used vehicle, you’ll almost never find a lease, and if you do, it will be massively expensive. If you want a used vehicle, you’re looking into buying it.
Insurance Premiums and Drivers
Both purchased and leased vehicles will have an effect on your insurance rates. Leased vehicles, however, will likely increase what you’ll pay. Additionally, certain drivers (like those under 21) may not be permitted to drive leased vehicles.
So Which is Better – Buying or Leasing?
If you are looking to own a vehicle and want to retain some value, while avoiding turn-in fees, buy. Make sure that you take a robust and critical view of your finances before you agree to buy or lease a vehicle and sign on the dotted line.
Most importantly, car dealerships may not help you get what’s right for your financial situation. You need to come armed with your own information, know what you’re using the car for and how much you should expect to pay.
A variety of different resources allow you to see the average of what people are paying around you. Without doing your research, you’re more likely to pay more, whether you purchase or lease.