The Case for Leasing
First, let’s look at leasing. Here are a few considerations in favor of choosing to lease, rather than buy:
1. Lower Monthly Payments
One of the main attractions of leasing is the typically lower monthly payments compared to buying a car with a loan. This is because you’re essentially paying for the car’s depreciation only during the lease term, not during the entire life of the vehicle. For many consumers, the lower payments offered by lease plans allows them to afford nicer, more luxurious cars than they could if they bought outright.
2. Reduced Repair Costs
Leased cars are usually covered by the manufacturer’s warranty for the duration of the lease. This means any necessary repairs will likely be covered, potentially saving you a significant amount of money. Routine maintenance such as oil changes and tire rotations might also be included in some leases, further reducing your out-of-pocket expenses. Be sure to fully understand what your lease agreement includes before you sign.
3. Driving the Latest Models
Leasing allows you to drive a new car every few years. This is appealing if you enjoy having the latest technology, safety features, and design updates. Once your lease term is up, you can simply return the car and lease a new model, avoiding the hassle of selling or trading in your old vehicle.
4. No Resale Hassles
When you lease a car, you don’t have to worry about its resale value or the process of selling it when you’re ready to replace it. At the end of the lease term, you simply return the car to the dealership. This convenience can be a significant advantage for those who prefer a hassle-free experience.
The Case for Buying
Now let’s turn the tables and examine factors that point toward buying as the better option:
1. Ownership and Equity
When you buy a car, you’re building equity with each payment you make. Once the loan is paid off, you own the car outright, and it becomes an asset. This long-term value is a key benefit of buying, as opposed to leasing, where you never actually own the vehicle.
2. No Mileage Restrictions
Leases usually come with mileage limits, typically ranging from 10,000 to 15,000 miles per year. Exceeding these limits can result in hefty financial penalties. When you buy a car, there are no mileage restrictions; you can drive as much as you want or need without worrying about extra costs, other than those maintenance items that are scheduled by mileage.
3. Freedom to Customize
Are you the kind of person who looks at a factory car and sees a blank canvas awaiting your personal expression? Owning a car gives you the freedom to customize and modify it to your liking. Whether it’s adding aftermarket parts, upgrading the sound system, or changing the paint color, you have complete control over your vehicle. Leasing contracts, on the other hand, usually have strict prohibitions on making modifications to the vehicle.
4. Long-Term Cost Savings
While the up-front costs and monthly payments for buying a car are generally higher than leasing, owning a car can be more economical in the long run. Once the loan is paid off, you’ll no longer have monthly payments, and (provided you’ve maintained the vehicle well) you can continue to drive the car for many years, saving money over time.
What to Consider When You’re Deciding
Now that you’ve seen the advantages of both sides, here are some key factors to help you make a decision to lease or buy:
1. Your Financial Situation
Evaluate your current financial condition, including your savings and monthly budget. If monthly cash flow is an issue, you may want to opt for a lease, since the monthly payments are generally lower. If you’re playing the long game and looking to eventually have low-cost transportation and an asset that contributes to your net worth, then buying may be the best choice for you. Having some liquid savings is another bonus for buyers, because making a significant down payment can help you get a better interest rate and/or shorter term on your loan.
2. Your Driving Habits
Not the quality of your skills or temperament behind the wheel, but the amount and type of driving you do. Think about your typical driving patterns and the number of miles you drive every month. If you have a long commute or frequently take road trips, buying might be the better option to avoid excessive mileage penalties that most leases have. However, if you drive less and prefer a new car every few years, leasing might be the choice for you.
3. Your Personal Preferences
Consider your lifestyle and what you want in a vehicle. If having the latest model with the newest features is important to you, leasing might be most economical way to enjoy that. If you prefer the idea of owning your car outright and eventually having no monthly payments, or if you want to customize your ride, buying is likely the better choice.
4. Your Long-Term Plans
Think about your long-term plans and how a car fits into them. If you anticipate major life changes, such as moving to a different city or starting a family, consider how these changes might impact your decision. Leasing offers more flexibility to adapt to changing circumstances.
The Open Road is Calling
Deciding whether to lease or buy a car is a significant financial decision that depends on many factors, including your financial situation, driving habits, personal preferences, and long-term plans. Both options have advantages and disadvantages, and the ideal choice of buying or leasing will differ from person to person.
Wheels for Business?
Is your vehicle used for business purposes? That’s a horse (and buggy) of a different color! Talk to our tax experts about the implications of owning and maintaining a vehicle for business and how it factors into the decision to lease or buy. We’re always ready to help.