When you need a vehicle, your two major choices are to buy or lease, but figuring out which is best is like trying to make your way through a thick forest in the dark of night. So, let’s dig into the good, the bad and the ugly for both leasing and buying.
When you lease an automobile, you do so for a specific period of time. Because leasing allows you to pay based on the vehicle’s depreciation for the time period you have it, you can generally expect to pay 60% of the vehicle’s purchase price within the time frame of your lease. This means your monthly lease payments are considerably less than if you decide to buy the same car new and get a three-year loan.
Since the typical lease is for 3 years, you are driving the car during its most trouble-free years. Many leased cars have warranties that make paying for maintenance zero-dollar or very low cost, which makes any problems easy to fix.
Leasing means you’ll get to experience the excitement that comes with driving a new car every two or three years so you are always driving the latest technology.
Cars are not an appreciating investment. By leasing, you don’t have to worry about fluctuations in the car’s trade-in value. At the end of the lease, just drop off the car at the dealer with no worry about trade in value or trying to sell the car yourself.
However, there are fees related to leasing in addition to the monthly lease cost, such as a down payment, lease initiation fee, security deposit, disposition fee, and documentation fees such as tax, tag, title registration and license. In most cases, you must purchase gap insurance to cover the total loss of the car through accident or theft. Gap insurance pays for the difference between the value of a car at the time it’s totaled or stolen and the balance of its lease. Standard auto insurance pays only what a car is worth at the time of a theft or accident.
If your lifestyle situation changes, it is harder to get out of a lease contract than it might be to sell a used vehicle. If you need to get out of a lease before it expires, you may be stuck with thousands of dollars in early termination fees and penalties—all due at once. Those charges could equal the amount of the lease for its entire term.
One of the biggest fees that leasers get hit with is going over their allotted mileage. You can only drive a set number of miles throughout your lease term. If you go over that limit, you’ll have to pay an excess mileage penalty, which can range from 10 cents to as much as 50 cents for every additional mile. If you are over the mileage limit by 10,000 miles, at $0.50/mile, you may have to pay as much as $5,000! There is no upside for driving fewer miles—you don’t get a credit for unused miles.
When leasing you need to return the car in showroom condition, minus usual wear and tear. If your car is a cafeteria on wheels with all the spills that entails, be prepared to pay extra at the end of the lease.
At the end of your lease, you have nothing—no transportation, no trade-in, nothing to sell. If you do decide to take on the responsibility of a lease, make sure you read ALL the fine print!
Buying a vehicle with a conventional car loan is pretty straightforward. You borrow money from a lending institution and make monthly payments for some number of years. A chunk of each payment is interest, and the rest is principal. As you repay the principal, you build equity until—by the end of the loan—the car is all yours.
When you buy a car and finance it, your monthly payments go towards owning an asset. Once you have completed the terms of your financing agreement, the car or truck is yours to keep as long as you like.
If you are committed to driving your vehicle for an extended amount of time and have adequate car insurance coverage, you are unlikely to lose out financially, as long as you make a sufficient down-payment and perform proper maintenance.
Buying a car means you can drive as many miles as you’d like. If you buy, you can sell the vehicle and get its current value, or you can trade it in and subtract that value from the new loan amount you need to borrow. The longer you keep a vehicle after a loan is paid off, the more value you get out of it. Over the long term, the cheapest way to drive is to buy a car and drive it until the wheels fall off.
Buying means you’ll have higher monthly payments than leasing. If you don’t have a lot of cash on hand or if your credit is bad, buying a new vehicle can be quite a challenge. Lenders generally require a sizable down payment, and there are additional costs such as tax, tag and title, which adds even more to the bill.
If you choose to buy, we recommend a certified used car so you will have some warranty on the vehicle. But that warranty won’t last forever and finding a trustworthy mechanic can be challenging, and future car repairs could cost thousands. You’ll be responsible for trading or selling your used car if you want a different one.
It’s very difficult to make a fair head-to-head comparison between a six-year loan and the standard three-year lease. While lease payments are typically cheaper than loan payments per month, they still add up over time. If you lease one car after another, your payments are never ending. When you buy and pay off your auto loan, you eliminate a fixed monthly cost and won’t have to worry about a car payment, especially if you keep the car for a long time and save the amount of your car payment to fund the purchase of a replacement vehicle.
The price of a car is accepted as a typical cost of American life by most people. Paying for a new or used vehicle is one of the most significant expenses individuals and families incur, other than housing costs.
Weighing the pros and cons will help you come to the decision that is right for you and your family. Use calculators to crunch the numbers, talk to qualified vehicle and financial pros, neighbors, friends and family members. Check out sites like https://www.kbb.com/ or https://www.autotrader.com/car-values/ and be sure to shop around so you choose a reliable car that holds its value and gets good fuel economy.
Remember, a car is simply transportation, not a personal statement about you. It is simply a way to get from Point A to Point B. Be sure the financial obligation of leasing or buying fits into your monthly budget so you are being a good steward of God’s blessings.
It all comes down to needs vs wants. Are you buying reliable transportation or trying to impress people with the kind of car your drive? Which of those options makes you a better steward of God’s blessings?