Buying vs. Leasing

Buying a new car vs. leasing a car is a very important financial decision that can have a long term impact on your budget. It’s important that you don’t end up with a car that you cannot afford down the road. Let’s take a look at each option in more detail.

The concept behind leasing is that you are basically renting the vehicle for 2-3 years, and unlike buying, your monthly payment is not determined by the full purchase cost of the vehicle.

It’s nice to have that new car feeling every few years, isn’t it? After a few years, it can be so convenient to just turn the car back in after it starts to age a little. Or, if it’s the perfect car, you may decide to keep it and continue to make the payments. Leasing generally results in lower maintenance and repair costs, and you are not investing in something that is depreciating in value. On top of all that, your down payment and monthly payment will probably be less than if you decide to buy the car. However, leasing comes with mileage restrictions, “wear and tear” policies, and the fact that you won’t have a tangible asset once your payments end. For some, leasing is a viable option … let’s take a look at buying.

It’s also nice to actually own what you’re driving and know that one day you will have it paid off. If your car lasts long enough, your budget will thank you because you will no longer have a car payment every month. But wait – assuming that you will be financing your vehicle, it’s important to understand the terms of the deal. What is the interest rate on the loan you are being offered, and what is the term of the loan? It’s very common to focus on only monthly payment, but it will cost you much more in the long run if you finance the vehicle for 60, 72, or 80 months rather than 24 or 36 months. In addition, all cars depreciate in value – which means that in 4-5 years, you may still have a car payment but the re-sale value will be modest at best.

Also consider the maintenance costs on an older vehicle. It’s not uncommon for some major repairs to be necessary at the 100,000 mile mark. However, if your car has been maintained well and has good re-sale value, you might be able to recoup some of your costs if you sell the car.

Most experts agree that the cost of buying and leasing is about the same for the first few years. There won’t be many repair costs and the various fees and insurance costs come out to about the same. The difference starts after the new car is paid off. Will you have your car for a few years after your car loan is paid off? If so, it typically makes sense to buy the car rather than lease. Check with car review publications to make sure that the car you want will last beyond the years that you’re financing it.