Most people have a car or need a car nowadays, but regardless of how many plans you make, leasing vs buying a car remains one of the most common debates people have.
It might be quite challenging for some people to buy a new car because the desired vehicle is not always quite affordable.
However, there are some differences that can be made in order to decide which option suits you best. There are pros and cons in both cases, so it will be the customer’s call on whether he or she should buy or lease a car.
If you are new on this market, you probably don’t know much about leasing a car, so this process might seem difficult and maybe too complicated, which is far from true. As such, we need to review the basics first in order to have a correct understanding about leasing or buying a car.
Buying a Car
When you think about leasing vs buying a car, the latter option appears to be simpler if you compare it with the former.
- Probably the best thing about buying a car is that it will be yours and you won’t have to worry that your investment is not safe. Also, if you don’t like it anymore and you want to buy a new car, you can simply sell the one you already own.
- Even so, it is better to lease or buy a car? Well, another benefit of owning a car is that you won’t have a period of fixed ownership on it.
- A significant difference between leasing and buying a car is that when you lease a car, your policy has higher insurance limits. In this case, buying an automobile seems to be a better idea.
- Plus, if you buy a car, you don’t have to worry about the mileage because there will be no restrictions or economic penalties.
- Buying a car has its disadvantages as well and the biggest one is the fact that you have to stick to a monthly payment, which in most cases takes out more money out of your pocket compared with leasing a car.
- Also, buying a car is more expensive because a significant down payment is required from the customer. Another downside is that you cannot always invest in your vehicle while you are paying the loan. It means that the depreciation of the car will make you think twice before deciding to buy a car over leasing one. In some cases, you might find yourself paying for a vehicle more than its current value so this type of financing can turn out to be tricky for some buyers.
- For instance, if you lease a car, the total cost will be amortized in around six years, whereas if you buy a vehicle, you put yourself to some additional risks.
- The monthly car payments are similar to the ones of a mortgage because they are divided into paying interest and principal. It is worth mentioning that the amounts vary as the biggest part of a monthly payment would go towards interest in the first few years.
- The disadvantage is that almost every new vehicle depreciates in the first years between 20 and 40 percent. It seems that leasing vs buying a car might turn in favor of leasing.
Leasing a car
This process has been regarded as being quite complicated and rather confusing but this is not entirely true.
- The biggest plus of leasing a car consists of the fact that you don’t need to spend so much money acquiring or maintaining a vehicle.
- When you are leasing a car, no down payment is required or in some cases, just a little one. In addition to this, no sales tax payments are required upfront compared with the situation when you buy a car.
- In leasing vs buying a car, the first option grants you the opportunity to own a new car every couple of years and your month payments are not as high as when you buy a car. To put it in a simple way, leasing a car means renting a vehicle for a certain number of months, usually ranging from 36 to 48 months.
- People who decide to lease a car do not have to worry about depreciation so much because it is included in the fixed monthly payment of the vehicle.
- You will never have to face this issue if you lease a car. If you cannot afford to buy a car, then leasing one might be a viable solution because most banks have a $30,000 limit regarding car loans.
So you want a car more expensive than $30,000, then leasing might be your best bet. Business owners usually lease vehicles for business purposes thanks to the fact that this option provides them with tax benefits.
We need to understand that in leasing vs buying a car there is no ideal alternative as leasing a vehicle has its own downsides as well.
- When you lease a car, you always depend on the monthly payment, so if you are the type of person who dislikes the idea of never-ending monthly payments, then leasing a car might not be your thing because you can never consider that the vehicle you pay for will ever be yours. At the end of a leasing period, you can finance the remaining value to switch from lease to loan payments. Fortunately, leasing a car has that option.
- Another disadvantage is that, when you lease a vehicle, your mile usage is restricted between 12,000 and 15,000 miles per year. If you drive more than that, you have to pay 15 cents for each mile, and between 20 and 25 cents for luxurious cars. Based on a quick calculation, if you drive around 4.000 extra miles, then you will have to pay around $800 at the end of the leasing period.
- The last downside is that leased cars have higher coverage costs compared with the situation when you simply buy a car. However, insurers will drop off these costs based on the place of residence, driving record, and the age of a customer.
Final Thoughts on Leasing vs Buying a Car
Leasing vs buying a car will also depend on a wide variety of factors and all of them are related to consumers. If you want to have your own car, then you will probably go for the buying option, but if you prefer paying a monthly payment while also having the opportunity of leasing another car, then you will go with the leasing option.