Buying vs. Leasing

Buying vs. Leasing a Car

Understanding the differences between buying and leasing is key to making an informed vehicle purchasing decision that makes the most sense for your finances, lifestyle, driving routine, and personal preferences.

Buying a Car: Pros and Cons

Ownership

One of the most significant advantages of buying a car is ownership. Whether you pay with cash or finance it through monthly payments, the car is entirely yours.

However, when you finance a vehicle, you must meet certain obligations set by the lender. This usually includes a down payment and timely monthly payments. Failure to meet these obligations can result in the lender repossessing the vehicle.

Since most people don't have the cash to purchase a vehicle outright, financing is a popular option. Lenders, such as dealerships, banks, credit unions, or private lenders, cover the vehicle's value plus interest over an agreed-upon period, typically three to six years. The terms and interest rates of your auto loan are determined by factors such as your income, credit score, and the vehicle's cost.

Upfront Costs

When financing a car, the bank usually requires a down payment as security. This down payment typically ranges between 10% and 20% of the vehicle's MSRP. A higher down payment can also reduce your monthly payment.

Another option is to trade in another vehicle and use any equity towards your down payment. The amount of the down payment is determined by the lender's requirements and your credit score.

Future Value and Equity

New cars depreciate over time, losing nearly 20% of their value within the first year of ownership, according to Trusted Choice Insurance. However, despite depreciation, buying a car allows you to build equity, provided your payments outpace the rate at which the car's value decreases.

This equity can be used towards your next vehicle when you decide to purchase one. The future value of your car depends on how well you maintain it, making regular scheduled maintenance by a factory-authorized facility essential to protect your investment.

End of Payments and Full Ownership

Once you've paid off your contract, the vehicle is entirely yours. The lending institution will send you a lien release as proof that the vehicle is paid off and belongs to you outright.

Benefits of Leasing a Car

Ownership

When you lease a car, you don't own it. Instead, you pay for the use of the vehicle, while the finance institution that you leased it through retains ownership. This arrangement often leads to lower monthly payments compared to purchasing the car outright.

Moreover, leasing protects drivers from unexpected drops in the vehicle's value due to unforeseen circumstances. For instance, if the car you lease depreciates because of a recall, it won't affect you financially in the same way it would if you owned the vehicle.

Upfront Costs

Leases typically don't require a hefty down payment. In most cases, you only need to cover the first month's payment, a security deposit, the acquisition fee, and other associated fees and taxes. However, similar to a purchase, paying more upfront can lower your monthly payments.

Future Value

With most leases, you won't own the vehicle at the end of the term. Therefore, you won't be responsible for selling it; that's the financial institution's responsibility. However, you may be subject to mileage limits, usually between 12,000 and 15,000 miles per year, and wear and tear guidelines. Exceeding these limits could result in additional charges when you return the vehicle.

Typically, lease terms range between two and three years, which is appealing to drivers who enjoy driving a new car every few years. Leasing can also allow you to afford a more expensive car for less money, particularly if you can only afford to buy a car at a lower market value.

End of Lease Options

At the end of the lease term, most people return the vehicle, while others may opt to purchase it or trade it in before the lease ends. Before signing any paperwork, it's essential to discuss these options with us, and we'll ensure that your lease is set up according to your preferences.

Best Cars to Lease

The best cars to lease are those with high book values after the lease term ends. Since they depreciate less, you end up paying less. It's advisable to review lease ratings to identify which cars retain their value best.