Have you ever wondered what the differences were between buying vs leasing a car? Buying or leasing a car is a major financial transaction, so you should make sure you understand the differences listed below before you decide which is right for you.
Basics of Buying a Car
Buying a car is the way to go for most people. When you buy a car, you’ll eventually own the car outright. You may have to make a down payment and take out a car loan to purchase a vehicle, but once you pay off your car loan you get to keep your car as long as you want. When you buy a car, you don’t have to worry about going over mileage limitations or what happens if you accidentally damage a cosmetic piece of the car you don’t care about like you would with a leased car. Since you’ll own the car outright after the loan is paid off, you only have to worry about fixing cosmetic issues that matter to you. Buying a car makes even more sense if you keep your cars longer than the loan term. Every year you keep your car after your car loan is paid off, you get to live without a car payment. Even if you have to make a few repairs each year, chances are they’ll cost less than taking out another car loan.
Basics of Leasing a Car
Leasing a car is essentially renting a car for an extended period. Leasing a car can be beneficial if you always like driving the latest cars. Rather than risk your car declining in value more than you anticipated, leases lock in a flat rate you’ll pay to drive a car for the time period of the lease. Since most car leases are generally three years or less, your car should be covered for most major repairs under the new car warranty provided by the manufacturer. However, “leasing is almost always more expensive in the long term,” according to the Consumer Financial Protection Bureau.
Leasing a car may be more inexpensive in the short term, but you’ll never own the car outright unless you buy it with a large balloon payment at the end of your lease term. If don’t buy the car at the end of your lease term, you must return it to the dealership in pristine condition or risk getting charged for damages. Additionally, you’ll have to make sure you stay under the mileage limitations and stick exactly to the scheduled maintenance schedule identified in your lease or you’ll face some potentially expensive fees. Unlike owning a car, you’ll never be able to live a month without having a car payment. Since you have to give the car back at the end of the lease, you’ll either have to lease another car or buy a vehicle if you want to continue having a car for transportation.
How to Decide Which Is Right for You
Buying vs leasing a car can be a complicated decision. For most people, buying a car is usually the right way to go for long term savings. This is even more true if you keep your car for longer than your car loan term. However, if you find yourself constantly trading in your car after just a couple years to get the latest and greatest vehicle, you may want to consider leasing. Of course, you always need to run the numbers to make sure you’re getting the best deal possible. Sometimes it makes more sense to buy cars, even if you like to trade in your car every three years. To figure out what is best for you, consider the total cost of leasing a car versus the total cost of owning a car over the same time period, including all fees and the estimated trade in value. Just be aware, future trade in values may change as the economy changes.
If you do decide to buy a car, make sure that you get the best deal possible on your new car loan by shopping around and comparing multiple new car loan offers. After you secure a loan, all you need to do is head to the dealership and buy your new car.
Lance is a personal finance freelance writer and contributor writer for LendingTree. He holds a CPA license issued by the Commonwealth of Virginia. Beyond writing for LendingTree and freelancing, Lance runs his own financial blog, Money Manifesto.
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