If you’re in the market for a car, you’re probably debating between leasing or buying a car. It is a major decision to make and one that requires you to take several considerations into account.
Although deciding whether to buy or lease a car has financial implications, money isn’t the only factor you should consider before you make your decision. Your tastes, lifestyle, and driving goals also play a role.
So, we took a look at the differences between buying and leasing a car, their pros, and cons. But before diving deep, let’s first understand the difference between buying and leasing a car.
What Is The Difference Between Buying And Leasing A Car?
Traditionally, buying a car involves two things:
- Pay cash for the car and drive out of the dealership as the car owner without debts. This is usually expensive, and few people manage to do so.
- Borrowing money in the form of a car loan, then making monthly payments with interest over a certain period. The car becomes yours after you’ve paid off the loan.
Leasing a car, in most cases, means renting a car. When you lease a car, you’ll still make monthly payments for the vehicle, but it’s not a loan you’re paying. So, the money that bought the car isn’t technically borrowed. This means you are on a pay for usage, but it’s on a month-to-month use. You’ll keep driving the leased car for as long as your lease is active. Leases can go up to 5 years.
But these are only a few basics, and everyone’s situation is different. If you’re in the market for a new car (or a used car, or certified pre-owned), you’ll need to make sure you won’t regret your choice of payment plan.
Lease Or Buy A Car: Which Is Better?
This is usually a personal choice based on your financial situation and personal lifestyle. However, ask anybody, and they’ll probably stress to you that car buying is the best way to go.
The people who say that they are not wrong because it’s true that buying a car is better from a financial perspective. However, you must be willing to commit large amounts to purchase the car in cash, make higher monthly payments, or pay off the loan later in full and keep the car.
On the other hand, leasing a car can be a little less expensive option when considered on a month-to-month basis. Besides, it’s a good option if you like to drive a different car every so often.
Lease Or Buy A Car? Pros and Cons
Before spending all your money to buy a car in cash, or leasing when you should be buying, or signing off on a loan when you should be leasing, consider the pros and cons.
Leasing a Car: Pros
On the surface, leasing a car looks more appealing than buying. For example, monthly payments are lower because you’re not paying back any principal.
So, here are some of the advantages of leasing a car:
- Lower monthly payments: typically, you pay less monthly payments when you lease a car than when you buy because there are no principal or interest amounts. You’re typically just renting the car.
- Drive a car during its trouble-free years: leasing gives you the advantage of driving the car during its most trouble-free years, especially when you lease a new car.
- Driving a new car or a late-model vehicle, every so often, possibly still covered by the manufacturer’s warranty.
- Lower repair costs because you’ll benefit from scheduled maintenance periods by the manufacturer or the dealer.
- You can drive a higher-priced, better-equipped car than you might otherwise be able to afford.
- No worrying about fluctuations in the car’s trade-in value when you need a new car.
Leasing a Car: Cons
Leasing a car might appear very attractive, but it has some downsides:
- You do not own the car at the end of the lease: you’ll return the car to the dealer even after paying a large amount of the money. However, most leases have the option of buying the car at the end of the lease.
- Leases are expensive in the end: when the lease comes to an end, it usually costs you more than an equivalent car loan. You pay fines for the restrictions that you might have overpassed on top of the monthly charges.
- Leases typically specify a limited number of miles (usually 1200), and you need to purchase extra mileage, or you’ll pay an excess mileage penalty.
- Wear and tear charges: If you don’t maintain your lease car in good condition, the dealer may have to charge you excess wear-and-tear charges. This can make it expensive in the end.
- Costly termination: if you need to terminate the lease before its expiry, you may pay excess charges for penalties and early termination fees – all due at once.
- Exact condition return: with a few exceptions like professional window tinting, the dealer requires you to bring back the car “as it left the showroom” condition, configured in the same way as when you leased it minus the usual wear and tear.
Buying A Car: Pros
Note: These situations could be different from one state to another or from one dealer to another, but they’re the general pros of buying a car.
Here are six advantages of buying a car:
- You own your car: when you buy a car, you will become the owner after a given period when you’ve finished paying off the loan.
- Paying less monthly over the long term: you can agree with the dealer to pay less monthly installments over a longer period. Moreover, once you pay it off, you’ll drive it longer, which means it will cost less.
- The option to sell: As the car owner, you have the flexibility to sell your car (and pay off any existing loan balance) or trade it for another car at any time.
- No mileage limit: owning a car gives you the benefit of driving your car as many miles as you want. Leases usually put a cap on the number of miles you can drive, and if you drive over the limit, you can be charged a hefty fee.
- No restrictions on car appearance, which means you can modify your car as you please.
- The benefit of discounting depreciation: depending on the car, 20% to 40% of its depreciation usually occurs within the first few years. So buying a 2- to 3-year-old-vehicle or more gives you the advantage of getting the depreciation discount.
Buying a Car: Cons
- Downpayment: when buying a car, you have to pay a higher down payment to avoid being upside down in the car loan. Being upside on loan means you are owing to the financier more than the car is worth.
- Higher monthly payments: usually, you will pay higher monthly car payments when you buy a car than when you lease.
- Warranty and maintenance You’re responsible for the car’s repair costs, and you take charge of the care once its warranty expires.
There isn’t a clear-cut answer for leasing or buying a car. Each scenario comes with its own challenges. While money is a factor, the decision to lease or buy the car usually comes down to your preference, lifestyle, and present situation. Before deciding, consider these pros and cons and take them into account when making your car ownership decision.