Car Leasing vs Buying

October 15, 2013

Ownership is often a matter of pride, but leasing can be a more practical option. Compare the respective pros and cons of leasing and buying cars.

When it comes to car leasing vs buying, it helps to know what matters most to you about having a car. Leasing has advantages over buying, and vice versa. With some consideration of the pros and cons, you can determine what best suits you.

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The Advantages of Leasing
Leases require very little upfront costs to acquire a new car. Leases usually range from two years up to five years. The monthly payments are lower, they involve little or no down payment and taxes are charged monthly instead of all at once, at the beginning. Maintenance costs are lower because most lease terms generally don't go far beyond the manufacturer's warranty. You also have the added benefit of driving a new car every few years. At the end of the lease term you may choose to return the car, pay "disposal" fees and walk away; you can finance the remaining value, the "residual value" and keep the car; or you can lease another one.

The Disadvantages of Leasing
With leasing, you rent the car; you don't own it. You pay only for the depreciation. You agree to limit your driving to generally 10,000 to 15,000 miles per year. You may negotiate higher yearly limits for an additional cost. If you exceed your total limit at the end of the lease, you will be charged a per mile fee ranging from 10 to 20 cents. You also agree to return the car in excellent condition, with consideration for "normal wear and tear." This means you are responsible for any major damage. Leases have more strict credit requirements and may also require greater insurance coverage than if you were to buy. It may also be difficult to get out of a lease. Over the long-term, leasing will cost more than buying because you are always making payments.

The Advantages of Buying
The primary advantage of buying is that when all of your payments are made, you own your car free and clear. You can sell it, trade it in or keep it as long as you like. There are no mileage limits or extra mileage charges, so you are free to drive as many miles as you wish, although excessive mileage could affect the resale value of the car. Your maintenance costs could increase as the car ages, but registration and insurance costs decrease over time.

The Disadvantages of Buying
The greatest disadvantage of buying is the higher upfront cost. The monthly payments are higher and you need a sensible down payment. Fees and taxes are added up front and can be built into the monthly payments. Depreciation can also reduce the value of the car in the early years, making your car worth less what you owe—often called being, "upside down."

Your Decision
How you decide on whether to lease or buy will be based on your personal preferences and finances. If you take pleasure in driving a new car every year, drive short to moderate distances and want the least upfront costs, then leasing might be for you. If you enjoy the idea of ownership, look forward to a time without car payments and tend to keep cars a long time, then buying may be your best bet.

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