Leasing vs. Financing
Comparing the two options
Should I buy or lease my next car? In short, there is no clear-cut answer. There are pros and cons to both options. The answer for you will depend on your finances and lifestyle. Financing, or buying, a new car is often cheaper long term, but usually requires higher monthly payments and a higher down payment. Leasing a new car will keep you in the newest models with lower monthly payments, but may surprise you with mileage and wear and tear fees at the end of your contract. We’ve written a few pros and cons down to help you decide what is best for you.
Financing a Car: Pros
Monthly Payments: Once you have finished paying off your car, it is yours. Until you decide to buy another car, you won’t have a monthly payment to worry about. The amount you will pay monthly is determined by several factors; including the down payment amount, interest rates on your loan, time-frame of the loan, trade-in value from a previous vehicle.
Equity: Throughout the length of your loan payments, you’re building equity, as long as your payments are outpacing the depreciation of the vehicle.
Wear and Tear: If you intend to use your car for anything other than impressing clients, this can be a huge pro. Life happens. Average wear and tear is covered in a lease, but you know you and what how you will use your car. If you don’t want to be worried about every scratch and crumb, stick to buying your vehicle.
Modifying the Vehicle: Once you drive the car off the lot, the car is yours to customize however you would like.
Mileage: You can take as many road trips as you would like. There is no mileage caps.
Credit Score: It is often easier for someone with not-so-good credit to finance a car than it would be to lease one. You may end up with high interest rates, but at least you would have a car.
Financing a Car: Cons
Monthly Payments: Depending on interest rates and your down payment, your monthly payments could be higher. Keep in mind that a purchased vehicle is considered a depreciating asset. Meaning it will lose value over time. Value goes down 20% just for driving it out of the lot. If you want to sell it later, or use it for trade-in value, it will not be worth what you paid for it.
Maintenance: The longer you have a car, the more repairs it will need and you will be responsible for them. Extended warranties are often available, but they won’t cover everything. Once the car’s warranty runs out, you will start having to pay out of pocket for all repairs.
Leasing a Car: Pros
Monthly Payments: Usually cheaper each month and leased cars used for business can be deducted from your taxes. You only pay the difference between the car’s price and what it’s expected to be worth at the end of the lease, or its residual value.
Maintenance: Many leases last about 3 years so the car is usually covered under warranty the entire time. You still must maintain the car, oil changes, tire rotations and recommended maintenance, but most unexpected repairs will be covered.
Newest and Shiniest: If you like having the nicest car on the block every 2-3 years, this is the option you’ll want. You will get a new car about every 3 years and you won’t have to worry about selling the old one. You bring the old keys to the dealership and they hand you the new keys. Of course, there will be a little more to the process, but in a nutshell, it’s really that easy.
Leasing a Car: Cons
Extra Fees: Mileage Overage Fees, Wear and Tear Fees, and it can be expensive to break your lease agreement early.
Buying the Vehicle: You may decide you want to buy the car at the end of your lease agreement. If so, you will then have to take out a loan (if you don’t have the cash on hand) that will often have higher interest rates because it is now a loan on a used vehicle.
Modifying the Vehicle: Be prepared to have all modifications undone before you return the car. You borrowed the car for a few years, the dealership likes it returned in the state it was given to you.
Credit Score: Leasing is rarely even a option if you have poor credit. It is not impossible, but can be more difficult.
Conclusion
Driving a new car is exciting. Always make sure to check and understand the terms of the financing option you choose. We always recommend running the numbers yourself. Be honest about your budget, needs in a vehicle, your lifestyle and your credit history.
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