Deciding whether to lease or finance a new car is a big financial decision. Both options have pros and cons based on your budget, expected mileage, and ownership length before committing. This detailed article breaks down all the vital financial implications to determine the best financial move for most drivers.
What Does Leasing a Car Mean?
Leasing a car is like renting. You get to drive a shiny new vehicle for a set period, usually two to four years, and you pay a monthly fee for the privilege. When your lease ends, you return the car and can either lease another new one or walk away.
What Does Buying a Car Mean?
Buying a car means paying for the vehicle upfront or, more commonly, taking out a loan from a financial institution and making monthly payments until the loan is paid off. Once you’ve finished paying, the car is yours to keep as long as you want.
Key Benefits of Leasing
Leasing a new car offers some tempting upfront advantages:
- Lower Monthly Payments – Since you only pay for the vehicle’s depreciation plus interest, payments are usually much lower than financing the entire purchase price. This allows you to drive a more expensive, luxury model for less each month.
- Little to No Down Payment – Most leases do not require more than the first month’s payment upfront. This conserves your cash compared to the 10% to 20% down required on financing.
- Warranty Coverage – Typical lease terms of two to three years mean you drive the car while still under the manufacturer’s bumper-to-bumper warranty. No worries about expensive repairs.
However, leasing has major long-term drawbacks to consider.
The Hidden Costs of Leases
• No Ownership – Leasing is essentially long-term renting. You must return the car after years of payments with nothing to show.
- Mileage Limits – Most leases limit annual mileage, usually 10k to 15k miles. Exceeding that incurs fees of up to $0.25 per mile. Carefully calculate your expected driving.
- Wear and Tear Fees – You pay all dents, scratches, and stain repairs beyond “normal wear and tear” standards. These can add up fast.
- Upfront and Disposition Fees – There are often acquisition, registration, and disposition fees at the lease end rolled into the total cost.
- Early Termination Fees – Breaking the lease early typically incurs fees equal to many months of payments. You are committed once signed.
Buying: The More Affordable Long-Term Option
Financing a car purchase avoids many lease pitfalls. Though monthly payments are higher, with more than five years of ownership, you save substantially by owning it outright.
- Build Equity – Loan payments build towards eventually fully owning the car. This equity finances your next vehicle. With leases, you perpetually make payments with nothing to show for them.
- No Mileage Worries – Drive as many miles as you want without penalties as long as you own it. High mileage does lower resale value when you trade it in.
- Freedom to Customize – Want to mod, add a roof rack, and get monthly detailing? No problem when it’s your car! Leases restrict any changes.
- No Early Termination Fees – Decide six months into your 5-year loan if you want something different? Trade in or sell the car without penalty fees.
While buying costs more upfront, over five to six years, the total cost is significantly less than leasing multiple cars over the same time frame. Carefully calculate the long-term costs before deciding.
Conclusion
Whether leasing or buying a car makes the most financial sense depends significantly on your budget, mileage needs, length of ownership, and other personal factors. Ultimately, it is about weighing the pros and cons and seeing what aligns best with your lifestyle and goals.
Consult a Financial Advisor Today
If you need help deciding on a payment option, start working with an expert from a financial institution today. They have the knowledge and experience to assess your situation and determine the most intelligent money move. Get started financing your car today!
