If you are in the market for a new car, you may have considered buying vs. leasing. This is especially a tough decision if you have never leased a car before or do not know anyone who is leasing a car. Let’s get down to business, and discuss the major pros and cons of buying vs. leasing.
Buying – PROS
- The owner builds equity in the car and eventually owns it at the end of the financing term.
- Both minor and major alterations can be made to the car without risking paying penalties or voiding the financing agreement.
- Once the car is paid off, the seller can keep or sell it. Keeping a paid-off car means lower monthly bills and financial savings. Selling the car can also result in a financial gain.
- There are no annual mileage restrictions.
- The car can also be sold before it is paid off, which offers a considerable amount of flexibility.
Buying – CONS
- Since the buyer usually finances the entire current price value of the car, the monthly payment is considerably higher than that of a leased car.
- The car loses approximately 10% of its value as soon as it is purchased and driven off the lot. It is no longer considered a new car, regardless of its extremely low mileage.
- The down payment is typically between $3,000 and $6,000.
- Upon the expiration of manufacturer’s warranty, the owner has to pay for the car’s maintenance and repairs. This can be a significant monthly expense.
- Since most financing terms are between 3 and 5 years, individuals who purchase cars risk the possibility of missing out on the latest and greatest features and technology more readily available to those who lease cars for much shorter periods of time.
Leasing – PROS
- The monthly payment is lower because the lessee only finances the difference between the car’s current price value and its expected value at the end of the lease term.
- The down payment is often $0 or slightly higher.
- A lot of manufacturers offer short lease terms; as short as 2 years.
- Lessees have the opportunity to experience the latest and greatest car features and technology every 2 years.
- At the end of the lease term, the lessee just turns in the car and does not have to worry about anything else.
Leasing – CONS
- Lease agreements come with strict mileage restrictions of 9,000, 12,000 or 15,000 miles per year. Lessees who break the mileage restriction must pay fees at the end of the lease term. The good news is that a lot of manufacturers, such as BMW, now allow lessees to purchase additional miles at the same rate on a as-needed basis.
- Major car alterations are not permitted and can void the lease agreement or result in serious penalty fees.
- The lessee is essentially renting the car for a fixed period of time and retains no equity at the end of the lease term.
- Individuals with a low credit score typically tend to have a tough time qualifying for favorable lease offers
- The lessee can potentially have to pay a significant amount of money if the car is damaged or in bad condition at the end of the lease term.
Deciding between buying and leasing a car essentially boils down to the person’s financial budget, lifestyle, and future plans. Neither option is better. They are different, and either one can be the better option based on the person who is leasing the car.