You want to get a new car, but where do you start? There are so many makes and models to consider with hundreds of different features, and the number of car dealerships to shop at is endless. Before you get too far into your search, there’s one major decision you need to make: should you buy or lease?
If you’re a rookie at buying a new car, read on to learn more about the differences between buying and leasing a vehicle so you can make the decision that is best for you.
Differences between buying and leasing
There are two options for purchasing a new car: buying and leasing. First, let’s look at what goes into buying a car.
- Buying – Still, the most popular way to purchase a new vehicle, this option includes negotiating the price of the vehicle and usually taking out a loan to cover some of the costs. If you have a vehicle to trade-in or some money for a down payment, this amount would be taken off the final price you owe. If you take out a loan, the lender holds the title for the vehicle until you pay off the loan. Once that is complete, you would get the title and own the car. Usually, the lender is a bank or finance company.
- Leasing – Car leasing options allow you to essentially rent a car from a dealership for a certain amount of time or number of miles. You make monthly payments on the vehicle and at the end of the lease, whether it’s years or miles, you return the vehicle to the dealership and get a different vehicle. Some lease agreements include an option to purchase the vehicle once the lease term has expired. If this is the case on your lease, you can keep your vehicle and work on financing with the dealership or return the leased car and move on to another one.
Benefits of buying and leasing cars
Now that we know what the main differences are between the purchase options, let’s look at some pros and cons of each.
- You Own the Car – If you’re one of the lucky ones who can purchase a car outright with cash, then the title and car are yours from the start. If you have to finance the car, while the lender holds the title of the car until you pay off the loan, the lender does not put any restrictions on what you can or can’t do with the car. For example, they cannot limit the number of miles you drive in a year. Additionally, with each payment you make, you own a little more of the car.
- You Can Use the Car as Payment on Your Next Car – When you own a car and decide you want to move on to another, you can use the amount that the vehicle is currently worth as a trade-in for your next car. Let’s say you financed a $35,000 car and paid it off in 7 years. After those 7 years of driving, your car is no longer worth $35,000. However, maybe it’s worth $16,000. You can use that $16,000 toward your next car purchase.
- Customization & Repairs – When you own a car, you can do whatever you want to it. Want to tint the windows or add a spoiler? Go ahead. Also, when you own a car, you can handle the maintenance and repairs however you want.
- There is an End to the Payments – After you make your final payment on a car loan, the payments are done. If you pay off your loan in a few years but end up keeping it for 10 years, you won’t have to make any payments on the vehicle you drive.
- Sell Whenever You Want – Owning a vehicle means you can sell it whenever you want. Usually, it’s best to keep a car until it’s paid off, but if you want to get rid of your car and you’re still financing it, you have the option to do so.
- More Expensive in the Beginning– Monthly payments on a financed car are usually higher than on a leased car. However, once the loan is paid off, having a car you own is cheaper every month. You can also make your monthly payments lower by putting down a larger down payment upfront.
- Paying Interest – When you buy a vehicle, you must pay interest on the entire cost of the car, minus whatever your down payment or trade-in was. When leasing, you only pay interest on the depreciation during the lease term.
- Sales Tax – In most states, you pay sales tax based on the price of the vehicle. When you lease, you usually only pay sales tax on the amount due at signing and the monthly payments.
- Lower Payments – Generally the monthly payments are lower for a leased car than a financed car. You could potentially lease a nicer vehicle for the same payments as you would for a lower-tier financed vehicle.
- Newer Technology – Since leases only last a few years, you will most likely be getting a newer vehicle every few years and therefore, always have the newest technology.
- Maintenance & Warranties – Some leases include the necessary maintenance, like oil changes and tune-ups. Additionally, if you stay within the lease’s mileage limit and have a car lease agreement of a usual length of time, your vehicle will probably always be covered by the factory warranty.
- Easier Trade-Ins – When your lease is up, it’s much easier to return the car to the dealership and move on to the next car rather than argue over the trade-in value of a car that is owned.
- You Don’t Own the Vehicle – The most prominent downside to leasing a car is that you never actually own it. The leasing company always holds the title.
- Mileage Restriction – Arguably the second largest negative to leasing a car is the limit on how many miles you can drive. Be careful about taking a road trip with a leased car, and definitely have a close estimate on the number of miles you drive a year just from your daily commutes. Leasing companies may even tell you where you can and can’t drive.
- You’ll Always Have a Payment – Unlike paying off a car loan, no matter how long you drive a leased car, you’ll always have to make a monthly payment and it will always be the same.
- No Trade-In Value – When you turn in a vehicle at the end of its lease, you probably won’t get anything in return as a trade-in value or down payment.
- Extra Costs – At the end of your lease, hopefully, you haven’t accumulated more miles than the lease agreement called for or have accrued any damage done onto your vehicle.
The information in this article is meant to be a general guideline on what you can possibly expect from buying or leasing a car. There are different types of car lease agreements to consider, many financing options, and a lot of personal information that plays into both types of car purchasing.
Just remember, always be sure to do your own research, and make the decision that is right for you, without breaking your wallet. Drive safe, and enjoy the road ahead!