You’ve probably faced this dilemma more than once when looking for a new car loan: Should I buy or lease a car? The hard part is there are so many variables to consider when deciding, it’s really difficult to make a final choice. However, a choice must be made, so let’s look at the reasons that you could consider leasing or buying a car.
Buying vs. Leasing a Vehicle
Deciding whether to buy or lease can be a difficult decision, so it helps to examine exactly what each means.
When you buy a car, you will eventually need to pay for the entire cost of the vehicle. You will make a down payment, pay down your car loan granted by the dealer or a bank, pay the sales tax in cash (or roll it into your loan) and pay an interest rate based on your credit score. If you follow these steps, the end result will be you owning the car outright.
If you lease a car, your agreement is not eventual ownership–you will return the car eventually. However, in return, you are only paying a portion of the vehicle’s cost and you don’t have to make a down payment. Also, your sales tax only relates to your monthly payments (not the entire cost of the car). You will give the car back at the end of your term unless you choose to purchase it at its depreciated resale value.
Here are a few more factors to look at when deciding whether to buy or lease a car:
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If you want |
Then you might consider |
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A new car every 2-3 years
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Leasing
(Leases benefit car owners who plan to switch cars regularly since a long-term commitment isnt required)
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To resell the car
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Buying
(Buying a vehicle means that you could resell it to recoup some of your payments, whereas leasing doesnt allow for any resale rights since the car doesnt belong to you)
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No major repair risks
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Leasing
(Because a lease is under a special warranty, the vehicle leaser never has to worry about covering major repairs)
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Eventual ownership |
Buying
(Leasing a car means youre borrowing it for a period of time, so if you want to eventually own the vehicle, its best to take out a car loan)
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Lower monthly payments
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Leasing
(Leasing a car means that you dont have to pay a high monthly payment because youre only paying a portion of the cars cost and the interest rates are lower)
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Long-term cost savings
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Buying
(While a lease could save you money in the short-term because you make low monthly payments, buying the vehicles means you will get to keep the car cost-free after youve successfully completed your term)
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A lack of vehicle restrictions (miles and maintenance)
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Buying
(When you lease, you must not only stay under a specific number of miles per year, but also keep the car in good condition to avoid wear-and-use charges)
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Cost Comparisons
Another major deciding factor in buying or leasing a car is determining how much it will cost. Here’s an example to take a closer look at how to compare costs:
Suppose you want to lease a $25,000 car with an estimated resale value of $17,000. This means you will be responsible for the $8,000 difference (or depreciated value), as well as finance charges and other fees over the length of your term.
However, if you want to buy the car you will pay the entire $25,000 plus those finances charges and sales tax for your state. You can use an auto loan calculator to figure out how much that would cost you each month. In addition, when your warranty expires, you will be responsible for all repairs associated with the car.
For some, buying the car works best because they plan to keep it until the wheels fall off and know that they can at least sell the car at a depreciated value to recoup some of the payments. However, if youre okay with paying monthly car notes for years with no financial gain otherwise then leasing may work for you.
What About Buying a Gently Used Car?
Some have found that a happy medium between auto financing and a car lease is just taking out a used car loan. The gently used vehicle offers a number of benefits. For instance, you may have the benefit of a lower down payment, lower up-front costs and a lower monthly payment. Also, you dont have to worry about the quick depreciation of the car when its used.
However, the gently used vehicle might not come with a warranty that you’re happy with because it may not still be covered by the manufacturer. As a result, you may have to purchase an extended warranty or pay out of pocket for repairs.
There is a lot to consider when deciding whether to lease or go through with a car finance. Its good to know, however, that there are benefits to taking either route. Which will you choose?
