Lease vs. Buy: Things to Consider when Leasing or Buying a Car
This age-old dilemma continues to find new life in today’s economy. Driving is so much a part of our daily lives, but not everyone can afford to buy their car outright. Leasing a car can be a great option to save money, or for those individuals who enjoy driving a different car every few years. Like renting an apartment, you spend money month after month without walking away at the end of the lease with anything of your own. Let’s compare the pros and cons of buying vs. leasing a car so you can make the right decision based on your lifestyle.
Leasing a Car
The leasing market has changed in recent years as more consumers utilize this option. You now have the option of leasing a wide variety of vehicles, including sports cars, mid-size SUVs and everything in between. When signing the lease, you will need to pay the first month’s lease payment. The lender may require that you pay the last month’s lease payment and a refundable security deposit.
The length of the lease usually lasts anywhere from a few years to a few months. Leasing can save you money monthly compared to buying a car outright. Monthly payments depend on where you’re driving and the value of the vehicle. Most contracts come with strict limits on mileage, typically allowing 12,000 to 15,000 miles annually. If you go over this threshold, you may be required to pay for it at the end of the lease.
If you decide to return the car before the lease ends, you may have to pay a penalty fee which could be just as expensive as finishing out the remainder of the lease. Once you return the car, you may have the option of buying it or leasing a new car.
Buying a Car
Buying a car gives you the chance to own something of value, but your monthly auto loan payment will typically be higher than a lease payment. You should do your own research to determine how much you can afford before investing in a vehicle. Depending on your financial situation, you may need to finance all or part of the vehicle’s payment. Many shoppers will get pre-approved for a car loan before they start cruising the lot, so they know exactly how much they can spend. Taking out a loan means paying interest, so it’s best to pay off the car as soon as possible. Look for a vehicle that’s within your budget to ensure the monthly instalment payments are affordable.
You will also have to pay for gas, insurance and repairs, so make sure you calculate the total monthly cost of owning the car before you sign on the dotted line. Getting a car loan also means having your credit report checked, paying taxes, title transfers and closing costs, all of which can incur additional fees.
The overall value of the car affects your finances, which should motivate you to keep it in great condition. This gives you the chance to sell the car or trade it for another model. If you haven’t finished paying off the loan, you can use the resale value to pay off the remaining balance. Keep in mind that cars depreciate quickly and this depreciation will affect the resale value.
Things to Consider
How Much You Can Afford
If you are looking to make the most of your money, it’s usually best to invest in a reliable vehicle that will last. The value of the car will depreciate over time, so you will need to drive with care and keep up with regular maintenance. You can always trade it in or sell it down the line.
Use the car payment calculator below to see how much you’ll have to pay each month.
How Often You Plan on Driving
If you are an occasional driver, you may want to lease a car for a limited period. You won’t have to worry about going over the mileage limit when using the leased car. It also limits your responsibility as a consumer, so you can free up your finances for buying a home or going to school.
If you drive a lot, consider buying a car of your own. You will be able to use it as you like without worrying about having to turn it in or going over the mileage limit.
How Long You Need the Car
If you only need the car temporarily, such as for a job, consider leasing to save money. You can always decide to buy it down the line if you change your mind. On the other hand, if you plan on using a car for the rest of your life, it’s best to start saving up for your own vehicle, so you don’t have to pay leasing fees for the foreseeable future.
Use this information in this article, and our payment calculator, to help you choose between leasing and buying a car.