Deciding between purchasing or leasing a car is usually a difficult choice to make. On one hand, it may be intimidating to part with a large sum of money upfront if you choose to buy the car off the lot. However, financing is usually an option that helps lessen the financial burden. Additionally, you do end up owning the vehicle as soon as you drive it home.
On the other hand, you also have the option to lease. Once you’ve signed all the necessary documents, you get to drive the vehicle home – a vehicle that may have been too expensive for you to buy outright. You will also end up in a cycle of monthly payments to keep a new car, and will not be the permanent owner – unless you choose to buy the car at the end of the lease term.
Benefits of Buying a Car
The greatest advantage that you get when purchasing a car is that you actually own it from the day you bring it home. This means that, unless you go for an auto loan – you don’t have to worry about monthly payments and can choose to sell it at any time.
Even with an auto loan, when you’ve finished paying it off – you have complete equity in the vehicle. Although initial monthly payments may be higher than leasing, from a long-term financial perspective – buying is typically a smarter choice.
Buying a new car also usually means lower insurance premiums compared to when you lease. Additionally, a newly bought car means that you can rack up as much mileage as you want with no overage fees. You can even customize the car as you see fit. Overall, buying a car usually ends up being a cheaper option in the long run.
The Low Down on Leasing a Car
Although the idea of leasing a car may sound appealing, it actually comes with a few things to be conscious of compared to purchasing a vehicle.
- By the end of the lease, you may have actually spent more than you would have by outright paying for the car or financing it.
- Longer car loan terms at the end of your lease (if you choose to finance your vehicle once the lease is up) – may seem attractive, but you will actually end up paying more based on the interest alone.
- People who choose to lease one car after the other will have monthly payments that go on for a long time. In the long term, the more cost-effective way to own a car is to buy and keep it until it’s no longer economical enough to maintain.
- Most auto loan leasing contracts require you to stay within a set number of miles. Going over that limit means you need to pay an extra charge for the mileage penalty. The cost can be as low as 10 cents to as much as 50 cents for each extra mile.
- If you decide that you don’t want the car anymore before the lease ends, you might be stuck paying thousands of dollars for early termination penalties and fees. These expenses will all be due at the same time.
- Although monthly lease payments tend to be cheaper than auto loan payments, you will have no equity in the car at the end of the contract.
Buying a new car is typically more advantageous than leasing a vehicle in the long run. The overall amount you’ll spend when purchasing a car over time often ends up being significantly less in comparison to leasing — also keeping in mind the value of the car you get to keep when buying. Not to mention, more flexibility too.
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Article Sources:
https://www.npr.org/2019/10/31/774757867/5-tips-for-buying-a-car-the-smart-way
https://www.investopedia.com/articles/pf/05/042105.asp
https://www.investopedia.com/articles/personal-finance/012715/when-leasing-car-better-buying.asp
https://www.consumerreports.org/buying-a-car/leasing-vs-buying-a-new-car/
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