Comparing Leasing and Buying a Car: Which Is Better for You?

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Contributing Writer

Bethany Hickey is a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. She is a content writer for Auto Credit Express, CarsDirect, and many other automotive blogs, as well as the Poetry Editor for UM-Flint’s writing magazine.


, Contributing Writer - August 24, 2020

When it comes to cars, leasing and buying are two sides of the same coin. There are definitely advantages to leasing, but it isn’t always the best choice for everyone. We're comparing leasing and buying to help you decide which route is right for you.

1. Warranty and Repairs

Leasing

When you lease, your vehicle is typically under warranty for the whole time you drive it. Most manufacturers offer a warranty for a set number of miles or months, which can help you save on service and repairs while you have the car.

Since leases are usually between two and four years long, you should be covered under the manufacturer’s warranty for your entire lease. There can be less stress with your vehicle when you have the peace of mind that comes with a manufacturer-backed warranty.

However, the entire time you’re driving your leased car, you must carry full coverage auto insurance and you’re responsible for getting all repairs taken care of before lease turn-in time.

Buying

When you buy a vehicle, you’re required to keep the car road legal, and carry full coverage auto insurance. However, if you ding your door, you can leave the ding! You aren’t obligated to fix cosmetic damages on your vehicle, or any damage on a car that's eventually going to be yours.

Remember though, if the vehicle is damaged beyond repair, you're still responsible for paying off your loan even if you can no longer drive the car.

2. Wear and Tear

Leasing

When you lease, it’s almost always a brand-new vehicle, which means you’re the first to put real mileage on it. However, you do have mileage limits. Typically, lease mileage limits are around 10,000 to 15,000 miles a year, but it varies.

If you drive a lot, consider paying for those extra miles up front (usually around 10 cents per mile) since it might save you some cash down the line. If you go over your miles, it can be around 25 cents per mile in overage charges.

Because more mileage can mean more wear and tear, leasing companies can also charge you for “excessive wear and tear.” If you don’t fix things that went wrong with the car while you’re leasing it, the leasing company is probably going to charge you for it when you return the vehicle. The charge is likely to come out of your security deposit, or your possibly your pocket if the damage exceeds your security deposit.

Buying

When you finance with an auto loan or outright buy a car, you can put on as many miles as you want. Knock it around, drive it to pieces – it’s your vehicle!

However, the time when wear and tear can bite you back is when you need to sell the car. If your vehicle isn’t in the greatest condition when you decide it’s time to sell it, you might not get back what you paid into it.

3. Lower Monthly Payments

Leasing

Leasing a new car is usually cheaper each month than taking out an auto loan for the same vehicle. This is because you’re not paying for the entire value of the car, only the deprecation, taxes, and fees that occur while you’re driving it. This is one of the biggest reasons why borrowers decide to lease. Often, lessees are payment shoppers.

Buying

If you want to buy a brand-new vehicle, you may find that your monthly payment can be rather hefty. This often leads to borrowers extending their loan terms so that they can have a more manageable car payment. Or, they put a large down payment on the loan to get to a more manageable selling price and monthly payment. Stretching your loan term only increases the cost of your auto loan overall, especially if you have a higher interest rate due to poor credit.

4. Negative Equity

Leasing

When you lease, negative equity isn’t a worry for you. Negative equity is when you owe more on the vehicle that it’s worth, also called being underwater on your loan. Remember that when you lease, you’re not working to pay off the whole value of the car.

Additionally, negative equity is a very common problem for new vehicles. Since nearly every leased car on the road is brand new, leasing can be a great way to drive a new vehicle without having to worry about being underwater on a loan. While you may not have to worry about negative equity with leasing, you also don’t earn equity like when you buy a car.

Buying

Brand-new vehicles have a risk of being in a negative equity position. Since many borrowers tend to stretch their loan terms to make their monthly payment more affordable on new cars, negative equity is a concern for many new vehicle buyers. However, you have the potential to earn equity in the car you buy.

Equity is the positive balance between the value of your vehicle and what you've paid on your loan. This happens when your car is worth more than what you owe on it – which is a good thing!

Equity is useful for when you want to trade in your vehicle for something else, since it can be used as a down payment. Earning potential is one of the biggest benefits of buying over leasing. If you don't need to use the money from the equity in your car as a down payment, you can sell the vehicle and keep the money, something you can't typically do in leasing.

5. New Car Smells

Leasing

When you lease, you can get into a new car every few years. This can be great for borrowers who like to have the latest bells and whistles, and experience that new vehicle smell often.

If you lease a car and want to get into something different every few years, you have that option. You’re not saddled to the vehicle for years or stuck paying it off. You can return it at the end of your lease, and get into a different model if you want, or a similar one! It’s up to you.

Buying

Some people like to stick with the same car for a while, or at least a similar make or model. Many borrowers like to customize their vehicle to their own liking, which is something that isn’t an option with leasing.

Want a new stereo system, a new paint job, or different rims? You can do these things with a car you own. With leasing, these are almost always not an option. The freedom of customization is a big selling point for many buyers who like to soup up their rides.

The Bottom Line

Whether or not you decide to lease a vehicle or buy one, it’s going to come down to your personal preferences and what you value from your car. However, your credit is also likely to influence your next vehicle decision.

If you have bad credit, leasing may not be in the cards for you right now. Leasing is typically reserved for buyers with good credit. It isn’t impossible to get approved for a new car lease when your credit is poor, but it isn’t easy. Oftentimes, bad credit borrowers have better luck financing their next vehicle with an auto loan, and repairing their credit to work up to a lease in the future.

No matter what your credit situation is, it can be difficult to find a dealership that’s right for you. We want to help with that at CarsDirect. We have a refined list of dealers with the resources to work with borrowers with all types of credit. If you’re having trouble finding a dealership that can work with you, fill out our free car loan request form, and we’ll do the looking for you.

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, Contributing Writer

Bethany Hickey is a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. She is a content writer for Auto Credit Express, CarsDirect, and many other automotive blogs, as well as the Poetry Editor for UM-Flint’s writing magazine.


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