Compare the costs of buying and leasing the same car.
Side-By-Side Cost Comparison
Should you buy or lease a car?
So, you’re in the market for a new car. How are you going to pay for it? For most people, there are two options: you can either buy or lease.
While buying a car outright might be the best way to save on financing costs, most people don’t have enough cash on hand to pay the full amount upfront. Typically, you’ll have enough for a down payment, then have to take out a financing loan for the remainder of the car’s price.
Your other option is to lease the car, which is essentially renting the car from the dealership.
So, which is better? Should you buy or lease a car?
Well, there are some trade-offs to consider between the two options.
1. Advantages of Buying
Economically, buying a car is usually better than leasing in the long run. When you buy a car, you will typically pay less in total than you would if you were to either:
- Lease the car then purchase it after the lease has ended, or
- Lease cars consecutively
2. Advantages of Leasing
People often choose to lease instead of buy when they prioritize factors other than pure dollars and cents. The advantages of leasing include:
- The monthly payments for leasing a car are less than the monthly payments for buying a car with a loan.
- There are sometimes tax advantages, or business advantages, to leasing. For instance, if you’re a small business owner and a car is essential for your work, you may be able to deduct the lease costs from your taxes.
- With leasing, you get worry-free maintenance. Most dealerships offer a manufacturer’s warranty that lasts at least three years. So, if you take out a three-year lease, most repairs and maintenance will be covered.
- There are no resale worries with leasing. When your lease is up, you don’t need to worry about negotiating with a dealership or private buyer to sell your used car. With a lease, you simply return the car and you’re done.
3. Disadvantages of Leasing
There are some notable disadvantages to leasing, including:
- There tend to be limits on allowable mileage when you lease a car. Typically, the lease will say something like: for every mile you drive beyond 12,000 a year, you have to pay 20 cents per mile.
- When you lease a car, you accrue no equity in the vehicle. It’s like renting an apartment. When your lease is over, you can’t sell the car or trade it in to reduce the cost of your next vehicle, you just have to hand over the keys.
There are pros and cons to both buying or leasing a new car. There is no one-size-fits-all solution to the question of whether you should buy or lease your next vehicle. Leasing is cheaper in the short term with lower monthly payments but more expensive in the long run because the payments never end and don’t go towards ownership.
The option you choose depends on your current financial picture, your future plans, and your automotive priorities. Making the right decision will require a careful consideration of these factors before locking in.