Should You Buy or Lease a New Car?

When it comes to that difficult decision, should you be purchasing vs just choosing to lease a car, it can be tough to decide which route to take. On one hand, leasing gives you the flexibility to change vehicles more often and can be cheaper in the short term. On the other hand, buying gives you the opportunity to build equity and eventually own the vehicle outright. So, if you are one of those wondering- should I buy or lease a car? Read our article to learn more about both.  

Let’s first cover the basics just to be sure we are on the same page. Your first question may be what’s the difference between financing and leasing? Leasing a car means that you essentially rent a vehicle for an agreed amount of time and for a fixed fee. As for purchasing a car, you are essentially buying it outright and it’s yours until you decide to sell it.   

Both financing and leasing a car have many differences, and there’s no simple answer to the question of which one should you choose. The answer depends on a variety of factors, including how much money you have to put down, how long you plan to keep the car, your driving habits, and your credit score.  

If you have a good credit score and can afford to put down a large down payment, buying might be the better option for you. You’ll build equity in the car as you make payments, and once the loan is paid off, you’ll own the car outright.  

But if you can’t afford a large down payment, leasing might be a better option. With leasing, you’re just renting the car for a set period of time and at the end of your lease term, you can either return the car or buy it outright.  

Pros and Cons of Leasing

You may be asking if leasing is ever a good idea, and the simplest answer we can give you is yes. Here we will provide a detailed overview of the pros and cons of leasing vs buying so that you can make an informed decision.  

When you lease a car, you are renting it from the dealership for a set period of time (usually 2-4 years). One of the main benefits of leasing is that it allows you to drive a newer, nicer car than you might be able to afford if you were to purchase it. Leasing also typically requires little or no money down, which can make it more affordable than buying in the short term. With a lease, your monthly payments will be lower than if you were buying the same car outright. That’s because you’re only paying for a portion of the car’s overall cost.  

However, there are also some drawbacks to leasing that should be considered. For one, you never actually own the car when you lease. So, at the end of your lease term, you’ll have nothing to show for it. Additionally, leases typically come with mileage restrictions which are usually between 10-15k miles per year, so if you exceed these limits, you’ll likely be charged hefty fees by the dealership. Finally, because leases are essentially long-term rental agreements, you won’t have any equity in the car if you decide to sell or trade it in before your lease is up.  

Great flexibility to upgrade to a newer car every few years is why leasing a car is a smart decision especially if you don’t mind the mileage restrictions. However, if you plan on driving the same car for many years and want to build equity, then buying may be the better choice.  

Pros and Cons of Buying  

When you buy, you own the car and can do with it as you please. You can also sell it or trade it in when you’re ready for something new. With a lease, you’re just renting the car so there is much less flexibility.  

One of the biggest advantages of buying is that you’ll have equity. This means that if you need to sell or trade it in before your auto loan is paid off, you’ll likely get more money for it than you would if you were leasing.   

If you decide to buy the car, you’ll need to finance it. There are a few different ways to do this, including traditional loans and auto dealer financing. In most cases, auto dealer financing is going to be your best bet.  

With this type of financing, the dealership will work with multiple lenders in order to get you the best interest rate possible. Plus, they’ll often offer extra incentives like low or no-interest financing for a certain period of time. In some cases, these promotional offers can save you a ton of money on your total loan amount but only if you’re able to pay it off before the introductory period ends. So, in the end, your monthly payment if you were to buy a car doesn’t have to be enormous and there are many ways how to score a good deal.  

Keep in mind that there is also insurance you will likely need to have. All dealerships and financial institutions will require you to carry full coverage on your vehicle until it’s paid in full in case you took out a loan. Insurance premiums are based on several factors, including the age of the vehicle and the driver. The newer the vehicle, the higher the premium will be, whether full coverage or liability because the more expensive parts will be to fix the vehicle if you get into a wreck.   

When purchasing an auto from a private seller, there’s always the risk that something could go wrong with it once you’ve driven it off the lot. But when buying from a dealership, most vehicles come with at least some sort of warranty option, even used cars, so this risk is non-existent here.   

What Is the Difference Between Car Leasing and Car Buying?

When it comes to leasing vs. buying autos, there are a few key differences to keep in mind some of which we already covered. For starters, with a lease, you’ll have the car for a set period of time typically 2-3 years. At the end of your lease term, you can simply return the car to the dealership with no further financial obligation. With a purchase, however, you own the vehicle outright and will continue making monthly payments until the loan is paid off in full.  

Another key difference has to do with mileage restrictions. When you lease a car, you’re typically allotted a certain number of miles that you can put on the vehicle each year. Going over this limit can result in hefty fines at the end of your lease term. With a purchase, there are no mileage restrictions you can drive as much or as little as you’d like.  

And lastly, leased vehicles must be returned to the dealership at the end of the term and they generally have lower resale values than purchased vehicles. This isn’t always the case, but it’s something to keep in mind nonetheless. With buying you will have the flexibility to sell your car and use that money along with a portion of your savings to buy a much better vehicle next time around while with leasing this is never an option.  

And to answer the question is leasing or buying a car better for your credit, it depends. If you’re looking to lower your credit utilization, it doesn’t make a difference if you choose to lease or buy your next car. They’ll both count as debt on your credit report, with either balance showing up. However, when you purchase a car, your entire financed amount shows up on your credit report. 

In case your loan is for $20,000, that is the amount of debt reported to the credit bureaus. With a leased car, on the other hand, the residual value of the vehicle after your lease term doesn’t show up. Say that the same $20,000 vehicle will be worth $10,000 after your three-year lease. In that instance, only $5,000 shows up as your borrowed amount on your credit report. So, it could help you with your credit repair journey to choose to lease over buy. But is it easier to get approved for a lease or finance? If you have a bad credit score, you may be able to get an auto loan much easier than a car lease although this may not always be the case.  

Ultimately, it all comes down to personal preference and your unique financial situation. If you’re someone who likes to drive a new car every few years and doesn’t mind sticking to strict mileage limits, leasing may be the way to go. On the other hand, if you’re looking for long-term ownership and flexibility when it comes to mileage, buying may be better than a lease.  

When Buying Is Better

We will now take a look at which advantages consumers gain from buying a vehicle rather than leasing it.  

If you can afford the monthly payments of a loan, as well as the added costs of insurance and maintenance, then buying may be the better option for you. Another factor to consider is how long you plan on keeping the vehicle. If you are unsure how long you plan on driving it or just know it will be for a long time, it will make more sense to buy a car.  

Finally, consider your driving habits. If you tend to put a lot of miles on your car each year or you drive in rough conditions that could lead to wear and tear, leasing may not be the best option since you’ll likely have to pay for any damage.  

When Leasing Is Better

Let’s now highlight when leasing is good. Leasing is a great way to get into a nice, new car without breaking the bank. If you don’t have the cash for a down payment on a loan or you’re not interested in taking out an auto loan at all, leasing may be a better option for you.  

Another factor to consider is how often you like to drive new cars. If you’re someone who likes to have the latest and greatest in your driveway every few years, leasing gives you the opportunity to do just that.  

Finally, consider your driving habits. If you tend to put less than 12,000 miles per year on your car or if you usually drive on well-maintained roads, then leasing may be a better option since extra wear and tear on your vehicle could lead to costly fees at the end of your lease agreement.  

Additionally, you don’t have to worry about selling the vehicle when you’re done. Your monthly payments will be lower than with a purchase and you may be able to get into a nicer car than you could afford to buy.  

However, by using the following information, you may be asking what is the cost to lease a car, which on average is $467 a month. This is at least $100 less than the monthly payment on the auto loan.   

Final Words

When it comes to leasing vs. buying autos, the answer is not so simple. It depends on many factors, including your budget, driving needs, and credit score. If you have the money to buy outright or can get a good interest rate on a loan, then buying may be the better option for you.   

However, if you’re looking for lower monthly payments and don’t mind giving up ownership of the vehicle at the end of the term, then leasing could be a good choice. Ultimately, it’s important to do your research and figure out which option is best suited for your specific situation.