One way to understand leasing versus buying a vehicle is to compare it to renting versus owning a home. The idea behind leasing is much like renting: essentially, you’re only paying for the use of the car, instead of buying the vehicle outright. And much like buying or renting a home, there are advantages to each option, and either can be right for the right person at the right time. So how do you decide if it’s best for you to lease or buy? To help, take a look at the differences between the two and how that comes out in pros and cons.
Much like buying a home, buying a car requires a somewhat sizeable down payment, usually of about several thousand dollars. Conversely, when you lease, you may be asked to make a small down payment, but it will likely be much less than if you were buying (think security deposit), and some dealerships may not require it at all. Similarly, because you are making payments only for use of the car during a given time period, leasing usually means your monthly payment will also be lower than if you were buying and you will have to pay less sales tax.
Mileage and flexibility
Since you don’t actually own a car you’re leasing, you have limited flexibility in what you can do and where you can go. You can’t modify a car you’re leasing to fit your tastes or needs and every lease contract will include a mileage agreement, usually limiting the miles you can drive to about 12,000 – 15,000 a year. You will pay for excess miles at the end of the lease and they don’t come cheap – overage charges can range from $.10 to $.50 a mile depending on the car and the contract, which adds up quickly. If you have a lengthy commute or are a big road tripper, leasing won’t really make sense. Car owners also have the flexibility to sell their car whenever they want and for as much as they can get for it. However, having a new car every two or three years is a kind of flexibility leasing offers that buying a car does not. If you’re the type of person that likes to always have the newer model, or your line of work requires you to have a better car, leasing gives you that option.
Leasing usually means lower repair costs. For example, with a three-year lease, the factory warranty will cover most repairs. You can simply visit the dealership whenever there’s a problem, kind of like calling your landlord if your refrigerator breaks. That said, you would be subject to a wear and tear inspection at the end of your lease, which could still result in repair fees. When you own the car and the warranty expires, you’ll be responsible for all repairs. The nice thing is that you can choose a mechanic you trust and you’ll be putting money into something you own that you can drive for many years after you’re done making payments.
Cost over time
While leasing may be cheaper if you’re looking at it from a monthly payment standpoint, it is definitely more expensive in the long run. Once you begin leasing, you usually wind up leasing again, and will always have a car payment without owning. Unless you buy or trade-in often, buying a car is more economical over time as eventually you will pay the car off and have a free mode of transportation until you’re ready to sell or the car just absolutely doesn’t drive anymore.
If you’re looking to drive a better car for less money every month, leasing might be the way to go. If you’re looking for the pride of ownership, and to have basically free transportation for a few years after your car is paid for, you can only get that when you buy.
Now that you understand the differences between leasing and buying, it’s ultimately up to you to wisely weigh the pros and cons and decide which path makes the most sense.