Leasing vs Buying a Car
Buy or Lease?
When looking for the perfect car, it is important to consider your options. There are pros and cons to both buying and leasing a car. Buying involves high monthly costs, however, you end up owning the vehicle. But if you get into a cycle of leasing, your monthly car payments don’t stop.
Pros of Leasing
Leasing has gained popularity over the years because of how low the monthly payments are and the opportunity to drive new cars. A large portion of a car's production costs are covered through leasing and automakers benefit from this. The vehicle is slower to depreciate if the resale value is high. This means that there will be cheaper leases for that model which benefits the car shoppers. When the customers return their vehicle at the end of the term, they have to go to the dealership and the dealer has the opportunity to either sell or lease them a different car. An off-lease customer needs a new car, so this is the perfect time to offer them a new one.
A big portion of luxury cars has been leased for decades now. Leasing these vehicles is more affordable than financing them. However, leasing more mainstream vehicles like compact cars, sedans, and small SUVs is gaining popularity too.
Low-interest rates have carried over into lease contracts which help regulate their cost. Leasing is just a different way to finance a car, so a crucial piece of the economics of a lease is the interest rate.
Sometimes when leasing, the yearly mileage limit is extremely low. Dealers do this to boost a vehicle's resale value. The issue with this is that most drivers will pass this number each year.
Every year there are more short-term leases (less than 36 months) because sometimes people don’t want to be locked into a long-term contract. However, the first two years of a car's existence consist of the steepest part of the depreciation curve which makes the lease period expensive.
Leasing may be a better option for people who stretch out loan payments for seven or eight years to keep their monthly payments low.
Pros of buying
Buying a car is a big decision. When buying a car, the initial payments are larger than with leasing, however, once the car is paid off, you will have full ownership of it. This vehicle becomes yours and is a valuable asset in your name. The steep monthly payments may turn you away at first, but once you pay the car off, the weight is lifted off your shoulders.
When you buy a car, you make the payments to eventually pay it off, and you won’t acquire end of term payments like you do with leases.
When you buy a car, you can drive as many miles as you’d like, and you don’t have to worry about paying extra (like you do with leasing). However, if you keep the mileage lower and your car in good condition, the resale value is higher and you can make a profit.
When you decide to buy, there is a freedom that comes with having a car in your name.
Whether Buying or Leasing, Car Insurance is an Important Factor to Consider
When leasing a vehicle, you still have to consider the costs of car insurance. Sometimes when leasing, car insurance can be more costly because you will have to buy a boutique policy. When you purchase a vehicle, you can opt for your state’s minimum liability coverage. However, you can only do this if you have full ownership of your vehicle. Consulting a reliable insurance provider who will help find the best type of coverage for you is important whether you are leasing or buying.
Evaluate the Pros and Cons
Leasing and buying are two major options when looking for a car. You have to think about your short and long term intentions to find the best option for you. With low monthly payments, leases are a good option in the short-term. However, purchasing a car is usually less expensive in the long run. Weighing in all the options and finding what works best for your situation will help you discover which option is right for you.
