Trying to determine whether to lease or buy a car can be a difficult decision. At the end of the day, you should weight the pros and cons of each and then assess which one fits your needs best. While you end up owning the vehicle at the end of buying a car, you will ultimately have to pay more monthly than you would if you leased the car. Here are the key differences that you should be aware of when you are attempting to decide between the two options.
Leasing A Car
If you are someone that doesn’t drive that much, then leasing a car may be the potion for you. Although at the end of the lease you do not own the vehicle, and you have to return it, you have the freedom to choose another car if you are bored with the vehicle you just finished leasing.
Typically, you will have to pay the first month’s payment, a refundable security deposit, an acquisition fee, a down payment, taxes, registration, and other up-front fees. However, your monthly payment is almost always lower than a loan payment since you are only paying for the depreciation value of the car during the term of the lease, interest, taxes, and fees. This can be the difference between a $450 payment and a $250 payment depending on the vehicle.
However, a few of the downsides to leasing vehicle include early termination fees. Typically, you will have to pay a hefty fee if you want to end the lease early. And as we have mentioned before, you do not own anything at the end of it, and you have no equity in the vehicle. So future value of the car does not affect you financially, but this can be a kicker to some who would like to have an asset they can sell off later.
For those that don’t drive a lot, leasing a car can make more sense financially. A lease will usually have a mileage limit between 12,000 to 15,000 miles a year. Also, you will be held responsible for any repairs or maintenance that exceeds normal wear and tear. If you just need a vehicle to get around town, especially if you work at or not far from home, then consider going the leasing route to keep more money in your pocket each month.
Buying A Car
If you are someone that has to drive a lot of business or has a long commute to work, then leasing will probably not be in your best interests. The tradeoff of having higher payments is that you don’t have to worry about how much you drive each month, avoiding costly penalties. And at the end of it all, you have an asset you can sell, putting that money towards a new car or towards some other expense in the future.
Naturally, you will have higher monthly payments since you are paying off the overall price of the vehicle, interest, and fees. However, unlike a lease, you can trade in or sell the vehicle at any time, giving you greater flexibility. However, this may seem like a headache since it is up to you to do this rather than just turning it in at the end of a lease and walking away. In general, you are basically paying more every month for greater freedom and flexibility with your vehicle. If you know you are going to be purchasing another car in the future, say for one of your kids, then having a car that you have equity in may seem more beneficial in the long run.