The choice between leasing and buying a new or used car can be an overwhelming one. On one hand, when you lease a vehicle, you don’t have to put any money down (something that would be difficult for some drivers to do) and monthly payments tend to be lower than if you’re financing through a traditional auto loan. On the other hand, the payments are lower because you’re only paying the depreciation and interest rather than buying equity in the vehicle.
So how do you decide which option is right for you? We’ll review the benefits and drawbacks of buying and leasing so you can make the best financial decision.
Benefits of Buying
When you choose to buy a car, you will own it outright at the end of the loan term. This means that you will have the most driving freedom and won’t have to worry about what your payments will be each month.
You also have more choices when buying a car because if it’s not up to par or if you dislike it, you can sell or trade it in for another vehicle. And if you choose ever to borrow money against the equity in your car, you have the freedom to do so.
You can make modifications to the car without worrying about violating the terms of your lease, especially after the warranty period ends as some changes may affect your manufacturer’s warranty. And, you can drive the car as many miles as you like without going over your allotted annual mileage — and pay any associated penalties.
Drawbacks of Buying
The most visible drawback is the potential for higher payments. You will also be making the payments longer — most auto loans are 60-72 months, compared to 36-48 months for a lease. And while you can sell or trade-in your car, you may end up with negative equity because of depreciation (meaning you owe more on your car than what it’s worth).
When purchasing, you may be required to put a down payment or take a longer loan term to make the payments affordable.
If you decide to buy a used car, you may find that your maintenance costs are higher if the manufacturer warranty has expired or wear and tear takes its toll.
Buying a car at the start of 2022 may also have its drawbacks due to both new and used car prices being heavily marked up. Production lines were severely impacted during the pandemic, whereas demand increased for new cars amongst consumers, which led to car prices skyrocketing. Dealerships are overpaying for used cars from consumers, which means they’ll have to sell them at higher prices to make a profit. Make sure you do your research and budget accordingly prior to buying.
Benefits of Leasing
When you lease a car, you will almost always have a lower monthly payment.
You do not have to make a down payment to secure the vehicle, thus making it easier for people with lower credit scores or limited savings to drive a new car.
With a lease, you are likely to have a new car every three years, and many leases include scheduled maintenance such as oil changes and tune-ups. This can keep your maintenance costs very low, as you’ll always be driving a car during its most reliable period.
You may also have access to better term options and safety features within your monthly price range.
Drawbacks of Leasing
The biggest drawback of a lease is that you will not own your car. You may have the option to purchase your vehicle at the end of the lease, but the overall purchase price plus the lease payments may end up costing you more than if you had bought the car initially.
Although monthly payments are manageable, you may find that the costs when you turn the leased vehicle in are high if:
- you didn’t follow the maintenance recommendations
- have driven more than the allowed mileage
- have had an accident that damages the car beyond expected normal wear and tear
Because you’re renting the car, you can’t make any modifications beyond some very specific cosmetic changes. So if you prefer having the freedom of customization, you might not be happy with a lease.
What Will Work for You?
For many people, buying a new or used car is one of the biggest financial decisions they make in their lives. While leasing gives drivers a new vehicle every few years and protects them from unexpected maintenance costs over time, purchasing can be more beneficial if you’re looking to build equity in your car over time.
Ultimately, there’s no right answer as to whether leasing or buying is better — it all depends on your financial situation and preferences. Let us know if you’d like to discuss your options and get an idea of the type of loan and payments you might qualify for.