Deciding whether to lease or buy a car is often a difficult choice that depends on many factors. Choosing between the two financing options is a tough decision, but the only way to know for sure that you chose what is right for your personal situation is to properly research both options.
The Basics of Leasing a Vehicle
Leasing a vehicle is essentially paying monthly installments for the right to drive that vehicle for a specified period of time, which is usually three or four years. Most leases are directly financed by the automotive dealers and involve the customer paying an initial fee to cover various expenses, such as taxes, and then paying equal monthly payments for the remainder of the lease contract. Since the car still belongs to the dealership, many lease contracts have a limit on how many miles can be driven every year and strict rules regarding the vehicle’s condition when it is returned.
Leasing involves lower payments than financing a car loan, as the driver only pays to cover the car’s depreciation costs, along with rent charges, taxes, and fees. In a car loan, the driver pays for the whole vehicle. Keep in mind, though, that terminating a lease contract early usually involves larger fees than sticking with the contract until the end. When the contract is up, the driver can either return the vehicle, buy it, or begin a lease contract on another vehicle.
The Pros and Cons of Leasing
The benefits and downsides of leasing greatly vary from person to person. While some see it as wasted money with no long-term gain, others view it as a way to always have a brand new vehicle with upgraded technology every few years.
It mainly boils down to the kind of person you are. If you enjoy the feeling of owning something and using it as you please, leasing is not a good choice for you, as it involves several restrictions. If, on the other hand, you are the kind of person who gets a rush from having something brand new, leasing is the ideal way to do that without paying for a whole new car every few years.
From a financial standpoint, leasing appeals to those who have a decent monthly income but can’t or won’t put a large sum of money into a down payment on a new vehicle. Many dealerships offer leasing deals with zero down payment, so the only initial costs for the driver are the taxes and fees. However, driving a car that isn’t yours may expose you to unforeseen expenses. You could pay extra for issues like driving more miles than allowed by the contract or damaging the vehicle. Insurance is also more expensive on leases.
The Basics of Buying a Vehicle
Buying a vehicle means that you will own it after leaving the dealer’s lot instead of only being allowed to drive it for a few years. It can be done by either paying upfront for the whole vehicle or financing a loan and making subsequent payments until it is paid off with interest. Just like leasing, deciding to buy a vehicle outright is a personal choice that depends on many factors. If you are the type of person who gets attached to a vehicle or wants the freedom to customize it as you please, buying it makes more sense.
Buying usually involves larger initial expenses than leasing, as it involves a down payment along with taxes and various fees. Given the fact that the monthly installments actually pay for the car itself, they are typically higher than those involved in lease contracts. However, at the end of the agreed loan term, you will become the full owner of the vehicle, unlike lease contracts that involve the vehicle being returned to the dealership.
The Pros and Cons of Buying
Owning your vehicle means that no one can put restrictions on how many miles you are allowed to drive every year, with no extra expenses caused by higher-than-agreed wear and tear. However, these rights are also responsibilities, as high mileage and wear and tear mean that the vehicle’s resell price will be lower than a similar vehicle with fewer miles and in better condition. Unlike with leases, you are free to sell your vehicle at any time, even before the end of the loan period.
Besides the higher monthly installments, financing a vehicle purchase also usually involves a higher initial fee. The exact amount for both the monthly fees and initial payment can be adjusted, however, depending on your preferences. You can choose to pay a larger initial fee and then have lower monthly payments, or you can pay a lower initial payment but compensate later down the road with high monthly fees. Another con is the fact that, since the car is yours, you will be responsible for any maintenance costs that are not covered in the warranty.
The fact that you fully own your vehicle can be both a pro and a con. On one hand, you can create an attachment with your car in a similar way you do with your house, giving you the unique satisfaction that ownership can create. You can modify it as you please, customize and personalize it, as it will be yours for as long as you want. On the other hand, the privilege of ownership comes with responsibility. If something goes wrong, you will have to pay out of your own pocket. Also, a car is a constantly depreciating asset.
Choosing between leasing and buying for your next vehicle purchase is a deeply personal decision. Each option has very appealing upsides and potentially off-putting downsides, with each buyer having to thoroughly analyze every aspect before committing to either of the two. Fortunately, now that you know exactly what leasing and buying entail, as well as the main advantages and disadvantages of both, you can make an informed decision based on your current and future financial situation, as well as your personal preferences.
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