Leasing vs Buying a Car

There are 2 choices when you want to get a new car or truck: You can lease, which leads to a lower monthly payment but often you are stuck in a perpetual cycle where you never stop paying for a car. Then you have the option to buy a car, which entails higher monthly payments…but you end up owning the vehicle in the end. Over the last few years, the car leasing market has skyrocketed. You have a lot more people leasing a vehicle rather than buying a vehicle.

The Altered Landscape

Luxury cars used to be the elephant in the room when it came to leases. As we move into the end of our current decade, we are seeing more compact cars, everyday sedans, and smaller SUVs finding their way into the new-car leasing market. One of the main reasons is very attractive finance rates. Remember, earlier I said the lower monthly costs can be attractive, so these lower rates are creating really great deals for consumers.

Car dealerships love to lease cars. This keeps the used car market steady with higher resale value, which means a slower depreciation, which translates into cheaper leases for that particular model. Ultimately, this benefits the consumers. Win-win.

Not only that, but when a customers returns their vehicle at the lease-end, the used car dealerships has a chance to place them into a new car, which is an immediate need of a consumer returning a lease. Another way in which a car’s resale value you can boosted lies within the mileage program of a lease. Changing the allowance to 10,000 miles per year instead of the usual 12,000 to 15,000 miles per year brings back vehicles with lower mileage, which boosts the resale value.

There is an increased trend in car leases of less than 36 months, which has it’s pros and cons. Pros: It looks very attractive to someone who doesn’t want to get locked up into a lengthy contract. At the same time, the average driver will exceed those 10,000 miles and end up paying more fees and penalties. It’s also becoming much more common for people who want to buy a vehicle to stretch the loan out for 7 or 8 years, helping them keep a reduced monthly payment.

The Difference between Loans and Leases

When you buy a car:

  • You own the vehicle and keep it as long as you want
  • Your upfront costs include the cash price or some sort of down payment, taxes, registration and miscellaneous fees
  • Loan payments are typically higher than lease
  • You can sell or trade your vehicle at anytime you decide you want something different
  • The vehicle will lose value, however it is yours to use as you like
  • You’re free to drive as many miles as you want
  • There isn’t a need to worry about wear and tear on a vehicle
  • You can customize or modify the vehicle as you wish

When you lease a car:

  • You don’t own the vehicle and must return it at the end of your lease period
  • They can include first month’s payment, a refundable security deposit, an acquisition fee, and other fees
  • Payments are usually lower than loan payments because you’re paying only for the car’s depreciation during the lease term
  • ¬†Ending a lease early can lead to more fees
  • You return the vehicle and pay any end of lease costs
  • You have no equity in the vehicle
  • You’re limited by the number of miles you drive
  • You cannot customize or modify the car

So while you’re out there looking at cars for sale or cars to lease, you have a lot to think about. There are pros and cons to each tactic for consumers when buying or leasing a vehicle. You just have to make the determination on which way you financially prefer.

Check out this video I found below that discusses the topic of buying or leasing a vehicle: