Buy or lease a new car? Usually, the choice comes down to what’s most important to you. For some drivers, it’s all about how much money they can make. It’s about the advantages of owning for the rest. Before you decide, you should thoroughly understand the whole process. That’s why we have jotted down our research on leasing vs. buying a car to make it easier for you.
Leasing vs. Buying a car: An overview
There are two ways to get a new car: lease it or buy it. Buying a car gives you more freedom about how much you can drive and what you can do with it, and at the end of the loan, you own the car. But leasing is a cheaper way to get a luxury car month-to-month if you want to buy one.
Leasing or buying a car depends on how many miles you plan to drive, how much money you are willing to spend, and what the car will be used for. Using a calculator is recommended to determine if your budget should rent or buy.
What is the process when you lease a car?
Leasing a car is like renting it out for a long time. You pay a monthly sum to drive the car for a certain amount of time and miles. Most lease agreements are paid for by a car dealer and last between three and four years.
Before you can rent a car, you need to pay some money upfront. This includes the dealer’s fees, taxes, and other small costs. Then, as part of your lease agreement, you’ll agree on how much you’ll pay each month and for how long.
At the lease’s end, you must give the car back to the dealership. In addition, you’ll have to pay fees for any damage to the car, unusual wear, and tear, and any extra miles you drive. You can also choose to buy the car at the end of the lease, though.
Pros of leasing a car
Covered repair: Most leased cars will have repairs covered by the manufacturer’s warranty. That means the renter should pay for some repairs while the lease is in effect.
Less money down: The amount you have to pay when you sign a lease varies, but it’s likely to be much less than if you took out a loan. In most states, sales tax is much lower when you lease a car than when you buy one.
Lower monthly payments: If you don’t put down a lot of money when you buy a car, leasing is likely to be less expensive each month.
Cons of leasing a car
No equity: When you buy a car, a portion of your monthly payment goes toward the loan’s principal and builds your equity. When you lease a car, all of the money you pay goes to the owner of the car. You don’t get any of it back.
Mileage restrictions: Most car leases limit how many miles you can drive each year. This limit is usually 12,000 miles. If you go over the number of miles you are allowed, you will have to pay a fee.
Additional fees: Some places to rent from need security deposits. Others charge fees if you want to end your lease before the date in your contract or if you want to buy the car at the end of your lease.
Condition requirements: Even though you don’t own a leased car, you’re still responsible for any damage it causes. If you damage the car and return it at the end of the lease, you’ll have to pay fees for what the car dealer considers too much wear and tear.
What is the process when you buy a car?
If you don’t have enough cash on hand to buy a car with cash, you’ll have to borrow money from a bank or another lender. That means that until you make your last loan payment, the lender is the car’s real owner.
Pros of buying a car
No restrictions: When you buy a car, you don’t have to worry about how many miles you can drive or how it looks. Even though they lower the value of your car, you won’t have to pay a fine for them.
Builds equity: Your car payment helps pay down the loan’s principal. That money is stored value in your car, and you can use it to get a discount on your next car if you trade it in.
Cons of buying a car
Risk of an upside-down loan: Being upside down on your car loan means you owe more than the car is worth. If your car is totaled and you don’t have gap insurance to cover the difference, you might still have to make payments on a car you no longer have.
Repair costs: If you own a car, you must pay for repairs after your factory warranty runs out.
Higher down payment: If you want to finance a car purchase, some lenders may ask you to put down a large amount. Depending on your finances, you might not be able to do this.
Depreciation: Depreciation means that the value of a car drops almost as soon as you buy it, especially if it’s brand new. That means much of your money goes away because of wear and tear.
Leasing vs. Buying a car: When it’s best to lease
You prefer new cars: Leasing a new car every few years is a good way to get a new model with the latest technology without buying and selling the car.
You don’t want to worry about repairs: Most new cars you lease will still be covered by the factory warranty. This makes it much less likely that you’ll have to pay for car repairs out of your own pocket.
You don’t have a large down payment: Even if you can buy a car without putting much down, it’s not always a good idea. If you only pay the bare minimum for a down payment, you might be upside down on your car loan for several years. That’s a riskier way to handle money than leasing a car.
Leasing vs. Buying a car: When it’s best to buy
You don’t want to worry about mileage: If you like to take road trips or think you might put a lot of miles on your car, you might go over the mileage limit with a lease. When you buy a car, you can decide how many miles you can put in it.
You can afford a large down payment: If you can afford to put enough money down on a car to avoid being upside down on a loan, you eliminate many financial risks. It might lead to a situation where you end up paying less.
You want to own the car for a long time: You can buy out the lease, but it’s more likely that you’ll save money in the long run if you buy the car instead of leasing it. If you plan to keep a car for a long time, buying it can help you save money and get to a point where you don’t have to make car payments.
Whether you lease or buy a car, there are a few important things to remember. First, your credit score is the best indicator of whether or not you can make your monthly payments. Also, think about what day of the week, month, or year you go to the dealership. For example, you might get a better deal around the holidays or winter.
Whether you should lease or buy a car depends on how much money you have and how you drive. Think about how much you can comfortably pay upfront every month and how many miles you drive to figure out the most affordable way to hit the road. When you know what kind of car you want, use a lease vs. buy calculator to determine the best way to spend your money.