Car ownership isn’t always an easy thing, and it starts with the decision to buy or lease. Going into a new car purchase or lease without the right knowledge can be a disastrous financial mistake. Understanding the fundamental differences of the buying vs leasing options can help you avoid making such a mistake.
If you’ve been wondering about the pros and cons of buying vs leasing, this article can help. Whether you are in the market for a new or used car, these tips can help you stay informed. The issues behind buying vs leasing a car is one of the oldest problems facing new car buyers.
Take a look at our leasing vs buying a car guide below to understand what goes into both processes. The more you know the better choice you’ll make.
Pros and Cons of buying vs leasing
Leasing a car – When it comes to a car lease, there’s quite a few cons versus pros.. When you sign a car lease, you are essentially borrowing the value of the vehicle. Although payments will be smaller than buying a car, at some point the value will depreciate enough to where you are under water.
Let’s say you enter a three year lease, but make the wrong choice in cars. Your chosen vehicle just happens to depreciate faster than others, which means you will owe more at the end of the lease. Most vehicle leases also have mileage restrictions in place, in order to prevent you from racking up the miles and driving down the value.
Not only that but all the same finance charges still apply on the amount you are paying against. This interest is often applied at the end of the lease, and against the outstanding balance.
Buying a car – When you go to buy a new car, the argument of buying vs leasing becomes a bit easier to understand. You are purchasing the vehicle for a set price, and based on your credit score you are paying finance charges on the balance.
This is the traditional way of buying a new car, and there’s not much in the way of surprises. Your vehicle will still depreciate over time and won’t have a balloon payment once your payments have completed.
Pros of buying a car :
- You own the vehicle free and clear
- Unlimited mileage (as long as you maintain the car)
- You own the car meaning you own the equity within it
Pros of leasing a car :
- Brand new car every 2 or 3 years
- Lower payments depending on lease
- Great as a short commute daily driver
What’s bad about a car lease? – The negatives in the buying vs leasing argument center around the fact that you don’t truly own the vehicle. Because you are paying for the depreciation of the vehicle while it’s in your possession, this complicates matters if you are on a budget.
What are the pros of leasing a car? – There are some leases that are geared towards people with less than ideal credit scores. Combined with a lower monthly payment, these leases can help you get into a car that you shouldn’t be able to afford otherwise.
The problem arises when the lease expires. You will need to return the vehicle or pay a balloon figure in order to keep it. Not only that but the lease may also have stipulations and rules for ownership. For example, you may not exceed a certain amount of mileage. Failure to follow these guidelines will result in additional fees being levied against you.
How to lease a car the right way – When going in to lease a vehicle, it’s a good idea to understand your financial lease agreement fully. Some of the big questions you want to ask include;
- Mileage Restrictions – How many miles are you allowed to drive?
- Balloon payment – Once your lease is up, how is your balloon payment structured?
- Penalties – Are there any penalties that you need to be aware of?
Knowing these details on your car lease can help you understand the buying vs leasing argument.
Why lease a car? – For people who don’t want a higher payment, leases can be a good option. It’s also excellent for those that don’t want to deal with long term ownership or the maintenance that requires. Some auto leases also give you the option to extend the period of the lease, which can present it’s own set of problems.
Ultimately the longer you lease a car, the higher your payment will ultimately become. Try to think of a car lease as paying for borrowed time, only depending on your vehicle you may be paying much more than buying one in the long run. Longer auto leases are also more prone to being “upside down” on the lease, which is never a good thing.
Have any questions about our guide on buying vs leasing, and the pros and cons of both? Leave us a comment below and let us know!