When choosing between buying vs. leasing a car, it’s important to base your decision on your personal preferences because there are several pros and cons for each option. To help guide you, we’ll break down the most important factors all should consider when picking between buying or leasing a car.
If you're unsure whether to buy or lease your next car, consider the following factors:
1. Depreciation/Ownership Length
Leasing allows you to drive a new car every few years without having to endure the selling process. This makes it a good option for people who frequently want the latest that the automotive industry has to offer. It’s important to note, though, that you need to honor the length of each lease term or pay significant penalties if you want to break the lease early.
Buying a car means you own it and you won’t have to make monthly payments after the length of your loan term ends. However, this means that the car's value will continuously go down the longer you own it, and you’re responsible for handling a trade-in or resale if you wish to change vehicles.
2. Driving Frequency
You’ll usually have to abide by a mileage limit when you lease a car. Limits typically range from 10,000 to 15,000 miles annually and result in a fee for each mile that surpasses the limit. Drivers who seldom use their cars might find that this makes more sense for them.
On the other hand, when you buy a car, you’re free to drive it as much as you please. You may end the warranty sooner or lessen the resale value more quickly if you drive long distances regularly, but there’s no resulting fee that you need to pay for doing so.
The down payment and monthly payments for a car lease are lower than those of a car loan. This is because you’re primarily paying the difference between the vehicle’s current value and the expected value at the end of the term when you lease it. The downside, though, is that you must continue making monthly payments if you wish to start a new lease term after the existing lease term ends.
The cost of a car loan includes the entire cost of the vehicle plus an annual percentage rate (APR) based on your credit score. It’s advantageous to make a higher down payment when you buy a car because it reduces the cost of your monthly payments, but you’ll certainly pay more for the length of a loan term than the length of a lease term. The appealing quality of a loan term, though, is that you’ll own the vehicle outright after it ends.
Because the length of a car lease is only a few years, you’ll usually return a vehicle before any maintenance issues and their resulting repair costs start to arise. However, you’re expected to return the car in good condition at the end of your lease, so any issues you do experience are your responsibility to address.
Buying a car usually comes with a warranty that covers maintenance work for a set number of years or miles driven. Once that warranty ends, though, you need to pay any wear and tear costs out of pocket, and they can add up over the life of a vehicle.
A leased vehicle may have modification restrictions you need to abide by. Additionally, if you're allowed to make modifications, you’re still expected to return the car in its original condition at the end of the lease. This may not be an issue for some, but car enthusiasts who like to customize their rides may find that the free rein that comes with buying is a necessity.