If you’re looking for a new car, there’s a big financial question at the heart of your search: should you buy or lease? While you’re looking for the features you like and good mileage, keep in mind that buying versus leasing will change the financial impact of getting a car before you ever pay for a tank of gas. Since there are different benefits to buying vs leasing, it’s certainly worth considering both options.
As with many things in personal finance, the truth is there is no one-size-fits-all option. Though your final decision will have financial implications, money is not the only factor you should consider before moving forward. It’s important to remember that your lifestyle, goals, budget and personal preferences should also have a role in whether you decide to buy or lease a vehicle.
Some benefits of leasing a car include:
If you’re looking to keep your monthly expenses low, a lease may be the best option for you. On average, the short-term cost of leasing a car is typically much lower than it is to purchase one.
For many drivers, the idea of being committed to one specific vehicle over an extended period of time isn’t ideal. If you prefer having a new model every few years, leasing may be your best bet. With new leases over time you also get the benefit of driving a car that has the most safety features and up-to-date technology.
Another huge plus to leasing is the warranty. Since leases are generally between two and four years, the vehicles are almost always fully covered by warranty for the life of the lease. With buying, you’ll need to pay for insurance. If you get lower-cost insurance and don’t have comprehensive car insurance, which covers you for damages that are not the result of a collision with another vehicle, you will have to pay for damages out of pocket. With a lease, you won’t have this financial worry.
Once your lease term expires, you can return the car or choose to sign a new lease. But either way you never have to go through the costly and time-consuming hassle of selling your car or stress about getting a fair trade-in value.
You may have the option to buy a car at the end of the lease term for a pre-set price, but keep in mind that cars are one of the worst investments due to how quickly they depreciate in value.
Some of the disadvantages of leasing a car include:
Throughout your lease, your monthly payments will require a stable and predictable income. If you have a sudden loss of cash flow, such as losing your job or incurring a significant medical expense, you may fall behind on your monthly payments. It’s crucial that you have a backup plan in case the worst happens.
When you are locked into a lease, it’s much harder to break the contract than it is to sell a used vehicle. There are also a lot of terms within a lease that you are required to meet to avoid paying high fees.
While driving too many kilometers or simply procrastinating on regular maintenance may seem like no big deal, these actions can cost you a lot of extra money with a lease. Although additional mileage fees seem unfair, if you plan on trading in a car that you owned, you would be charged for above-average mileage as well.
Unfortunately, while leasing a vehicle has many great perks, you’re likely to pay more in the long run for a similar car rather than if you bought it outright. While selling a car is hardly a money-making venture due to depreciation, you’ll at least get something in return for your vehicle rather than nothing once your lease is up.
Some of the benefits of buying a car include:
When you own your vehicle, the ability to do whatever you want, whenever you want without the fear of additional fees is a great feeling. You can drive as much as you want and customize your car to your specific preferences because you own your car.
You also have the flexibility to trade or sell your vehicle, as you’re never locked into a fixed ownership period. As long as you are committed to driving your vehicle for an extended amount of time and are adequately covered with car insurance, you will pay less over the long term.
Some of the disadvantages of buying a car include:
When you purchase a car, the initial cost will be higher compared to that when you lease. This is due to the need for a downpayment as well as (typically) a higher monthly payment. You also are taking on the responsibility of paying for any long-term wear and tear on your vehicle that may happen after the initial warranty expires. As vehicles age, the cost of repairs can rise significantly. If you decide to buy, make sure you budget for regular maintenance and upkeep.
Keep in mind as well that when you own your car outright, you hold the responsibility of trading or selling the vehicle when you’re ready for a new one.
As with any other major financial decision, we recommend seriously doing your homework before deciding whether you should lease or purchase a car. Leases are less expensive in the short term, but when you look at the bigger picture, purchasing a vehicle is typically the cheaper option.
The best decision for you ultimately depends on your preferences, your budget, and how mindful you want to be of any expenses you might incur down the road. If you need any help with incorporating the cost of either a new lease or freshly owned vehicle into your financial plan, Planswell is here to help. Good luck with your decision!