Taking over someone's car payments isn't easy or always possible. Here's what you need to know. Owning a car can be expensive. In fact, the latest data from AAA shows that the average yearly cost to own and operate a new vehicle in 2022 is $10,728 or $894 per…
When you need a new car, the decision to lease or buy can be a tough one.
Are you in the market for a new vehicle? If so, you most likely have a car in mind and have begun comparing prices at all of the dealerships in your area. If so, you’ve likely noticed that two different monthly payment options are listed for the vehicle: the purchase price and the lease price. The lease price is, more than likely, the lowest of the two, making it the most intriguing.
But what if I told you that the lowest price doesn’t always reflect the best option? Depending on your finances and must-haves in a vehicle, it might not be. That said, when it comes to leasing versus buying a car, there are many different things to consider.
Leasing a Car
Leasing a car gives you the right to use it for an agreed-upon amount of time and for a set number of miles. You can think about it as being similar to renting a vehicle, only longer-term, usually ranging from two to three years.
Typically, leasing a car doesn’t lead to vehicle ownership, unless the dealer offers you a car lease buyout, and you accept it. So what attracts people to leasing? Well, most lessees like the option of switching to a new car every few years and enjoy not having to be the one responsible for maintenance costs.
The pros and cons of leasing a car
Even though there are way more cons than pros, there are some people who a lease just makes more sense for.
When Leasing a Car Is Best
Although leasing has its downsides, it is a great option for certain drivers. Drivers that will reap the benefits of leasing the most include:
Those who like having the newest car
It’s 100% okay if you want to have a brand-new car every few years. That’s why leasing has become such a popular option, after all. If the main thing you’re looking to get out of your car is a cool ride, stick to the lower monthly payments that a lease can offer.
Those looking for lower monthly payments
When you buy a new car, even when you make a down payment, your monthly car payment could still be high. Leasing offers a more affordable way to drive, and, for the most part, you don’t have to come up with the money for a down payment or other fees a dealer might charge purchasers.
Those who don’t want to be responsible for maintenance
Since leasing gives you the ability to drive brand new cars, which are often still protected by factory and dealership warranty contracts, maintaining your vehicle often comes down to just bringing it into the dealer shop whenever something needs repair.
Although there will likely be components that aren’t covered under warranties, the dealership’s goal is to help you keep your leased vehicle in tip-top shape. This way, they can lessen the depreciation of the vehicle’s value and still make a profit when they eventually sell it.
Those who use their car for business
If you own a business, leasing a vehicle is usually more economical for your bottom line. Not only can you count on lower payments on a car that impresses your clients, but you can also take advantage of tax deductions available to those who lease.
Buying a Car
When you purchase a car, you are building equity in a valuable asset, even though vehicles start depreciating as soon as you drive them off the lot. As long as you are careful not to develop negative equity, you can sell your vehicle for a profit in times of financial need or even use it as a trade-in when purchasing a new vehicle.
One thing that buying a car comes with that a vehicle lease doesn’t is an auto loan. Unless you have enough cash to cover the entire purchase price of the vehicle, you’ll need to finance your vehicle.
The pros and cons of buying a car
Although the pros and cons are even, there are still many people who would benefit more from buying a car.
When Buying a Car Is Best
Buying a car has many upsides, but is it better than leasing? For these people, the answer is usually yes:
Those looking to build equity
Although cars can depreciate rather fast, they are still an asset that holds equity. If this is important to you, buying your car is the way to go. To ensure that you reap the benefits of having equity in your car, like its resale value, be sure to pay off your car loan as quickly as you comfortably can.
Those who like to customize their car
Buying a vehicle gives you the freedom to do anything (legally) that you want with it. Want to trick out your vehicle with aftermarket parts? No problem. Maybe you really love bumper stickers and want to plaster the entire back of your vehicle? Done!
Those looking for long-term affordability
Buying a car might seem like a substantial investment, especially upfront, but the cost over time is usually less than leasing. If you keep your car long-term and are able to pay it off before it depreciates, it is even more affordable.
If you choose to go down the buying route and are worried about the cost of monthly payments, remember that you always have the option to refinance your auto loan later and lock in better rates.
Those who rack up the miles
If you travel often or have a lengthy commute, you likely rack up miles faster than people who use their vehicle just to get around town. If you spend a lot of time driving, buying a car can help you avoid mileage overage charges.
Those who want to buy a used car
If you’re looking for the absolute cheapest price on your next vehicle, buying used could be the answer. You can buy used cars for under $10,000 on most lots and take out a loan with a shorter loan term.
Used cars often come with lower insurance costs, cheaper annual registration rates, and lower down payment requirements. Just make sure to do your research beforehand, as some used cars will come with a ton of maintenance costs, which could ultimately offset the low price.
What Option Should You Choose?
To decide which option is right for you, you’ll want to start by weighing both and not acting on impulse. After all, locking yourself into a contract, whether with a leasing company or a lender, can have a huge impact on your overall financial well-being if you choose incorrectly.
To make your decision easier, start by asking yourself these questions:
- Do you need to upgrade your vehicle every couple of years?
- Are you open to purchasing a vehicle and driving it for several years, even if it doesn’t have the newest technology?
- Can you afford for your insurance premium to go up? If you can’t, will lower monthly payments on a lease offset the added cost?
- Do you travel more than the typical yearly lease mileage limits?
- Is building equity in a salable asset important to you?
Once you have the answers, it should be clear, based on your personal preferences and needs, which option is right for you.