Lease or buy a car? If you’re not sure which is the best financial option — buying or leasing a new car — don’t worry, you’re not alone. Between calculating the number of miles you drive per year, resale values, down payment options, depreciation, and other factors, the decision process quickly becomes complicated.
Here are the pros and cons of each option: buying or leasing a car.
The advantages of buying
The monthly car payment you’ve been making? One day it will come to an end. Once you’ve paid off the loan, the car is yours, and you’ll be building equity, one of the main advantages of buying. Alternatively, if you can buy the vehicle outright, you’ll save on auto loan interest charges.
If you put a lot of miles in your car, tend to treat it roughly, or constantly bring small children with you who spill little glasses of pink grape juice on your upholstery, that’s a consideration that’s likely to weigh you in favor of owning your own car. When it’s your car, you don’t have to worry about lease restrictions or extra charges for excessive wear and tear. Plus, you’ll have the freedom to customize your car the way you want.
The disadvantages of buying
when buying a car, you will likely make a higher down payment and monthly payments than on a lease. If you want a new car every few years, you will have to negotiate not only the purchase of the car but also the trade-in of your old car, one more complication, unless you like to sell used cars. Also, the devaluation can affect the resale price of your car. Another disadvantage is that when you use the money to buy a car, it is not available for investments or other uses.
The advantages of leasing
With regard to leasing, generally, you do not have to pay a lot of money in advance to have the keys in your hands, something for many that are the greatest advantage of this system. In addition, the payments are usually lower.
If you like having a cash reserve, leasing allows you to pay less money for a car. Lastly, for those of you who love the smell of a new car, leasing allows you to get a new car at the end of the lease term without the hassle of selling or trading in your old car and thinking about how much your car has dropped in value, a bonus for many.
The Disadvantages of Leasing
If you lease, you’ll need to keep your monthly car payments an ongoing item in your budget, unless you ultimately decide to buy a car, and you won’t be building equity. For those who put in a lot of miles in their vehicles, mileage restrictions can mean cash penalties if you exceed the 10,000 to 12,000 mile per year limit on most leases. Make sure the lease term doesn’t exceed the length of the car warranty – you don’t want to risk having to pay for major repairs after the warranty expires. Many leases now require an additional amount upfront to start the lease. Sometimes called the “delivery charge,” this amount can range from 5 to 10 percent of the cost (usually the MSRP) of the vehicle.
Choosing a car that holds its value well is important, as the current value of the vehicle at the end of the lease will affect your monthly payment. And remember, your lease binds you to a set term, reducing your flexibility to switch vehicles without breaking the lease and incurring a financial penalty. Finally, keep in mind that it can be difficult to find the exact make and model you’re looking to lease, especially at advertised prices.
Leasing vs buying a car?
Ultimately it comes down to your needs, budget, and personal preferences. Leasing or buying a car isn’t an easy decision, but Regions car calculators like “Buy or lease a vehicle?” and other car calculators are available to help you make a decision.
Is it better to lease or finance a car?
Surely you are considering financing a car and do not know if it is better to lease or finance. Most people hesitate between these two options if they do not have enough funds to pay it in cash. Although financing is the most common, 31% of people choose to lease their vehicle.
Each method is different. In the following paragraphs, we will give you information to choose from according to your needs.
Choose to lease it if:
You enjoy the smell of new. If you are one of those who prefer to update your vehicle every two years, this option is for you.
You have a hard time committing. Leasing is like renting a house; although you are paying for the privilege, the car is not really yours. You’re paying for the luxury of driving a new car, one that you’ll likely trade infrequently.
You want to be covered by the warranty at all times. When you lease, your car will almost always be under warranty. You don’t have to worry too much about major mechanical issues like owning your own car.
You want to pay less. When you lease, you generally don’t need to fork out a down payment. Plus, monthly payments are 30% to 50% lower than if you were financing the same car.
You don’t want to worry about selling it. Selling a car involves some work. Once your lease is up, simply return the car to the dealership.
You want to own your own car but you don’t want to pay in full in cash. Once you finish making all the payments, the car will be completely yours.
You don’t mind shelling out a down payment. When looking for financing, take into account that you will have to pay between 10 and 15% of the value of the car as a down payment.
You don’t want to limit your driving distances. Leasing a car places limits on the number of miles you can drive each term. When you own your car, you have complete control over your distances and mileage.
Do you want to personalize your car? The lease contract usually prohibits modifications to the vehicle. But if you own your own car, you can upgrade it, change the tires; give it your personal touch.
You want to improve your credit score. By financing, you are using someone else’s money to pay for your car. If you make all payments on time, you will be helping to improve your credit score.
You want basic auto insurance. Owning your car gives you the freedom to choose any type of auto insurance that fits your needs. People who rent usually need to get more insurance coverage.