Buying vs Leasing: Which One Is Right For You?
Deciding between purchasing or leasing a car is usually a difficult choice to make.
On one hand, it may be intimidating to part with a large sum of money upfront if you choose to buy it off the lot. However, 100% financing is usually an option that helps lessen the financial burden. Additionally, you do end up owning the vehicle as soon as you drive it home.
On the other hand, you have the option to lease. This is when you pay a monthly expense based on your agreement with a lender. Once you’ve signed all the necessary documents, you get to drive the vehicle home, a vehicle that may have been too expensive for you to buy outright. But, you end up in a cycle of monthly payments just to keep the new car, and will not be the permanent owner.
Benefits of Buying a Car
The greatest advantage that you get when purchasing a car is that you actually own it from the day you bring it home. This means that, unless you go for an auto loan, you don’t have to worry about monthly payments and can choose to sell it at any time.
Even with an auto loan, when you’ve finished paying it off, you have complete equity in the vehicle. Although initial monthly payments may be higher than leasing, from a long-term financial perspective, buying is a smarter choice.
Buying a new car also means lower insurance premiums compared to when you lease. Additionally, a newly bought car means that you can rack up as much mileage as you want with no excess fees. You can even customize the car as you see fit.
Overall, buying a car usually ends up as a cheaper option than leasing.
Financial Pitfalls of Leasing a Car
Although the idea of leasing a car may sound appealing, it actually comes with numerous disadvantages compared to simply purchasing a vehicle.
● By the end of the lease, you may have actually spent more than you would have by outright paying for the car.
● Longer car loan terms, such as six or seven-year deals, may seem attractive but you actually end up paying more based on interest alone.
● People who choose to lease one car after the other will have monthly payments that go on for a long time. In the long term, the more cost-effective way to own a car is to buy and keep it until it’s no longer economical enough to maintain. Then, it can be sold.
● Most auto loan leasing contracts require you to keep within a set number of miles. Going over that limit means you need to pay an extra charge for the mileage penalty. The cost can be as low as 10 cents to as much as 50 cents for each extra mile.
● If you decide that you don’t want the car anymore, you might be stuck paying thousands of dollars just for termination penalties and fees. These expenses will all be due at the same time.
● Although monthly lease payments tend to be cheaper than auto loan payments, you have no equity in the car at the end of the contract.
Conclusion
As you can see, buying a new car is usually more advantageous than leasing a vehicle. The overall amount you spend when purchasing a new car often ends up significantly less compared to the total you hand over when leasing — keeping in mind the value of the car you get to keep when buying.
Buying offers more flexibility and is the smarter financial choice in the long run. Ready to get pre-approved, ditch those repair bills and enjoy the new to you, car smell?
Sources:
https://www.npr.org/2019/10/31/774757867/5-tips-for-buying-a-car-the-smart-way
https://www.investopedia.com/articles/pf/05/042105.asp
https://www.investopedia.com/articles/personal-finance/012715/when-leasing-car-better-buying.asp
https://www.consumerreports.org/buying-a-car/leasing-vs-buying-a-new-car/