Leasing vs Buying a New Car

Leasing vs Buying a new car crosses the mind of every new car buyer in the United States. With many financing and leasing options available today, it is a good debate. A first-time car buyer must know about the pros and cons of leasing a car vs buying one. 

This guide breaks down the options when considering buying vs leasing a new car in the United States.

The Difference Between Leasing and Buying a Car

Before knowing whether it is better to lease or buy a car, you should know these two terms. Leasing a car is essentially renting it for a set period, also known as the lease period. A lease is done through a new car dealership based on the brand of car you want. 

The duration of one such lease period can be around a couple of years; the average term in the United States is 36 months (three years). You get the car to drive for a fixed number of miles during this time. When setting up your lease, you typically pay a down payment before you get your vehicle, and then you pay monthly throughout the lease period. At the end of your lease term, you have to return the car to the dealer. 

On the other hand, when it comes to buying a car, you either own it (cash payment) or are in the process of owning it completely (financing). While financing it, you’ll also be making monthly payments (with interest), but you’ll be gaining more equity on your vehicle with each payment. Eventually, you’ll become the sole owner of the vehicle once the payments are complete. 

With that being said, is leasing better than buying?

Leasing vs Buying a Car Pros and Cons

Both the options have their advantages and disadvantages. They also cater to different types of people based on their financial needs and the potential time you need a vehicle to drive.

ADVANTAGES OF LEASING A CAR

• MONTHLY PAYMENTS ARE LOWER

The common question is, “is it more expensive to buy or lease a car?” Whether you’re driving a leased car or a financed one, you’ll have to make monthly payments regardless. This is where Leasing is usually preferred, as you can pay a smaller amount each month than if you were financing it. 

You can even negotiate for a better lease deal. Just because there’s a monthly amount mentioned on the flyer doesn’t mean that you’re bound to pay as much. It is just the retail price of the vehicle that the manufacturer suggests. 

Also, a better credit score means better deals, so keep that in mind in preparing for your lease. If you have not established credit on your own, it may be worth considering a plan to do so. You can read more on Building Your Credit with this guide.

• YOU MAY DRIVE WHAT YOU CANNOT AFFORD TO BUY

One of the biggest advantages of the lower potential monthly payments that come with a lease is getting a vehicle that you may not be able to when financing. This is why many people tend to go for more luxurious cars or top-level trims of regular vehicles when leasing. 

But there’s more to it. Once your lease period ends and you give the car back, you can just get the newer model on another lease period if your credit is still in good standing. Of course, you won’t get the most value out of a vehicle if you keep changing it. 

Still, who doesn’t love that new car smell right?

• THE CAR IS TROUBLE-FREE

You’ll lease a brand-new car for three to four years, and the maintenance should be easy. Also, because it will be a new car, the running costs will be lower as well. 

But easy routine maintenance isn’t the only advantage. The car will be more secure and safe as well. This is because you’ll most likely get the top trim which will have all the latest active safety features in the auto industry. 

• THE WARRANTY KEEPS YOU COVERED

There is a chance for those unexpected issues when it comes to any high-tech machine, and those issues be a real pain. However, any failures encountered by the vehicle’s components under a lease will be covered by the limited and/or powertrain warranties. 

These warranties usually cover the first three to five years of the vehicle when purchased as well, so you’ll also be secure if that is the route you choose. 

• YOU DON’T HAVE TO WORRY ABOUT RESALE

Selling a car is relatively easy, but selling it for good value can be confusing or a time commitment. If selling privately, you usually must deal with numerous buyers and accommodate them by taking time. Most of these buyers will haggle for the right price, and some may even just be looking to waste your time. 

This is where Leasing is favored by those who hate the whole buying/selling process. Once your lease period is over, you can just drop off the vehicle at the dealer and potentially sign up for a new lease.

• TAX BENEFITS OF LEASING A CAR VS BUYING A CAR

Of course, there are tax benefits to leasing a car for business purposes. You get tax write-offs as you will be able to make deductions on financing costs and vehicle depreciation. These tax benefits will benefit a new business with a fleet of vehicles. 

With so many advantages, you might be thinking, “should I lease a car then?”. Well, it is important always to understand both sides of the coin. 

Disadvantages of Leasing a Car

• YOU CANNOT PUT UNLIMITED MILES ON IT

As mentioned above, lease deals restrict the mileage you can put on a vehicle. According to Investopedia, most lease deals limit you to 12000 miles per year. You can pay more for a better deal to increase this mileage by a couple of thousand miles if you know your driving habits will require that. 

So, what happens if you drive over this expected mileage limit? You’ll have to pay additional charges, of course. This charge can be as much as 50 cents for a single additional mile driven. Hence, it is imperative that you be smart when calculating the miles you’ll drive yearly.

• YOU HAVE TO MAINTAIN IT WELL

One of the frequently asked questions from potential car leasers is, “Do I still need to pay for maintenance when leasing a car?”. The answer is yes. You often have to fund routine vehicle maintenance from your own pocket. Typically, a lease will cover the repairs under the vehicle warranty.

This isn’t true for all cases, however. You can find more lucrative lease deals on the market that’ll even cover you for scheduled maintenance costs such as oil changes and the replacement of some components.  

• MORE EXPENSIVE IN THE LONG-TERM

The traditional process of owning a car means that you buy a car, use and maintain it, and then get rid of it when it’s no longer worth maintaining. To achieve the most value of the vehicle, you must drive it as long as it can be driven before a major overhaul. 

This cannot be done when you’re leasing a vehicle. You’ll have to return the car to the dealer; then you should decide if you’re going to start a new lease by getting another vehicle or paying the residual amount for the car you’ve just finished Leasing. 

Buying a car helps you make the most out of its value. When you buy a vehicle, you can “drive it into the ground”, once you’ve paid for it completely. But in a lease, the payments will never end as you’ll keep changing cars. Back-to-back leases are pricier than a single loan. 

• THE CAR WON’T TECHNICALLY BE YOURS

When you buy a car, you become its owner, and you can do whatever you want to it (under the watchful eye of the law). When you lease a car, you’ll not just hold restrictions on the miles you can put on it. You cannot modify it or even ruin it because it still belongs to the dealer. 

You must return the car at the end of the lease period in the best condition, similar to the one you took it in. Any damages to the vehicle will lead to additional charges when you return it to the dealership. These include dents, stains, etc. 

• NO SELL-OUTS OR TRADE-INS

There are many reasons one can have for selling a car. One of them is that they need the money, and a vehicle is an asset. Another is that they need to trade their vehicle in for something newer and better. This is not possible with a leased car. 

Sure, you can end your lease agreement before its set time. However, you’ll need to pay hefty charges for it to end. This also applies when you cannot afford the payments. You’ll just be stuck with thousands of dollars owed due to early termination of the lease. 

Should I Lease or Buy a Car?

Is leasing a car better than buying one? That isn’t easy to establish as both the concepts have their advantages.

So, should YOU lease or buy a car? Now, this depends on you and your driving habits. If you drive a lot, then a lease isn’t for you. A lease will also be unsuitable if you don’t care for your vehicles, are prone to accidents. 

But if you like driving a new car after every three years and can pay attention to its maintenance, you should consider a lease. Leasing a car can also get you better rebates than what financers get. 

Also, you won’t be affected by factors such as the vehicle’s resale value, depreciation (unless you’re buying out the car) and high-interest rates. 

To conclude, both options are acceptable when buying a new car. But if you’re truly looking to save money, you best buy used or pay for a new car in cash.