When you buy a car you are faced with many options, this includes whether or not you want to buy a vehicle outright or lease a vehicle. We're here to break down the pros and cons of leasing and buying as you try to make a decision on your next ride.
When you lease a car, you’re pretty much locked into the lease. Early termination fees are generally so high that if you think you won’t want the car for the duration of the lease it isn’t worth it. It’s important to always consider how many miles you consistently drive. When you lease, you’re limited to a certain amount of miles, typically 10,000-15,000 per year.
Manufacturers set guidelines for how many miles you can drive over the life of the lease. You can buy additional miles upfront for a fee and if you go over the mileage allotment, prepare to pay when you return the vehicle. Signing a lease contract also limits your ability to modify the vehicle. This also applies to the random ding or the fact that you have to fix any damage to the vehicle before turning it back in.
When you sign a lease you’re essentially renting the vehicle, which means that you get to return the car at the end of the lease term, typically every two to four years. Buyers like leasing, because they can upgrade to a new car more frequently. Leases are typically sponsored by the manufacturer and the lease payments afford you “more car for the money.” Typically this means that you can get a vehicle with more bells and whistles and pay less monthly than you would if you were to purchase the vehicle outright. Manufacturers typically also offer warranties and sometimes will even cover service appointments during the life of the lease term. As a lessee, you don’t have to worry much about paying for mechanical breakdowns.
Buying a car is the second most expensive purchase most Americans make in their lifetime. There’s a significant upfront cost associated with the purchase. If the car breaks down outside of the warranty, you’re responsible for repairs. You have to pay for your car loan even if the car doesn’t work. There’s more work to get rid of your car when you buy it, you’ll have to sell or trade it into the dealer, which takes time. Loan monthly payments are generally more expensive than lease payments because you’re paying off the whole value of the car over 4-5 years on a loan vs. a small portion of the vehicle’s value over 2-3 years with a lease.
Once you catch up with the depreciation (for new cars), and almost immediately for used cars (because that's what smart car buyers do, right?), you start to build equity into your vehicle. Once you have your loan paid off, the vehicle is yours and all the value (equity) can be used as equity for your next vehicle. You can sell or trade your car at any time and are only responsible for the value of the loan, and there is generally no “early payoff fee” on loans. Because the car is yours, you can drive as much as you want and wear and tear will not be counted against you.
Whether you choose to buy or lease a vehicle, it’s important to consider the factors above as you make your purchasing decision.
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