A car is likely one of the most expensive acquisitions you will ever make. Luckily, there are different ways to get you behind the wheel of a vehicle suited to all budgets. One of the major decisions to make is that of whether to lease vs. buy a car.
Many consider the pros and cons of leasing a car instead of buying one outright. Alongside the possible tax advantages, you can often drive vehicles that may be more expensive than you can afford to purchase. Auto leasing is big business, and it is estimated that up to 25% (or 72 million vehicles in the US are leased). This amount is expected to increase even more throughout the 2020s.
On the other hand, you have no restrictions on usage or mileage when buying a car. Plus, it’s cheaper in the long run. Both options have advantages and disadvantages, and our guide will help you understand the right choice for you– whether to lease or buy vehicles.
Leasing vs. Buying a Car: The Major Differences
|
Leasing |
Buying |
| Up-front costs |
Some leasing companies require an upfront deposit, down payments, or acquisition fees. |
Costs can range from the cash price in full to a down payment. |
| Monthly payments |
Lease payments are typically lower than loan payments as you’re paying off the vehicle’s depreciation period over a fixed term, not for the entire purchase price of the car. |
Loan payments are higher than lease payments as you are paying for the entire cost of the car. |
| Maintenance |
Lease companies will require you to maintain the vehicle’s upkeep to a high standard. |
There are no requirements to keep the car to a specific standard, but poor maintenance will affect resale value. |
| Wear and tear |
Wear and tear over or above expectations will incur charges stipulated in your lease agreement. |
Wear and tear will damage the resale value of your vehicle, but unlike leasing, there are no financial penalties, even if the car purchase was loan financed. |
| Use/mileage |
Most lease companies restrict the number of miles you can drive in a year. Restrictions vary, so check with your lease company. Exceeding the mileage limit will incur extra charges. |
There are no restrictions on mileage or use, but excessive mileage will affect the vehicle’s resale value. |
| Customization |
Any modifications made will need to be removed on the return of the vehicle. Any permanent damage resulting from customization will incur a penalty for the value of the repair. |
No restrictions on customizations that can be performed on the car. |
| Ownership |
You do not own the vehicle when you enter into a lease agreement. At the end of the lease term, you may have the option to buy the car, but if you do not take up this option, the vehicle must be returned. |
When you buy the vehicle, ownership is transferred to you. You can keep the car for as long or as short as you want. |
| End of term |
You have to return the car to the leasing company unless you decide to pick up the option to buy the vehicle. |
If you buy a vehicle with a finance loan, you own the car at the end of the loan term. |
Pros and Cons of Leasing a Car
Pros
|
Cons
|
| An easier way to drive a higher-end model vehicle than might be possible otherwise |
Leasing will generally end up costing more money as you pay for the period in which the vehicle depreciates at the fastest rate |
| As the car is new, you will enjoy the vehicle at a time when it is most reliable |
Leased cars come with limits on usage and mileage |
| There are potential tax advantages of leasing vs. buying a car |
The vehicle has to be maintained to a high standard - otherwise, you will have to pay a fee for wear and tear |
| With the stress-free process at the end of the lease, you simply hand the vehicle back to the leasing company |
If your circumstances change and you want to return the car early, you will need to pay significant breakage or termination fees that are financially punitive |
| Leasing usually costs less than finance for buying a car, meaning you will have extra disposable income each month |
You will not own the vehicle at the end of the lease period, so you’ll need to spend more monthly payments on a new car |
The Costs
The average cost of leasing a car can vary but generally ranges from around $200 to $600 per month or around $2,400 to $7,200 per year.
The average cost of buying a car can also vary depending on factors such as the make and model of the car. However, it can range from around $20,000 to $50,000 or more. This would translate to an average cost of $400 to $1000 per month, or $4,800 to $12,000 per year for a car loan with a five-year term. It's worth noting that these costs are approximate and may vary depending on factors such as location, taxes, and insurance.
Who is Leasing Best For?
You’re likely wondering, “should I lease or buy a car?”. As for the former option, leasing a vehicle is best for people who want to drive a car without making a large down payment. Additionally, monthly costs are lower than buying through finance, so if you want to manage your cash flow tightly on a monthly basis but still want to drive a new car, leasing could be the best option for you.
Ultimately, leasing gives you the chance to drive upmarket, brand-new vehicles on a regular basis, so if you can’t resist that new-car smell, leasing could be a good choice for you.
Pros and Cons of Buying a Car
Pros
|
Cons
|
| There are no restrictions to mileage or usage, so you can use the car as you’d like |
Monthly payments are higher for buying a car with a loan than for leasing a vehicle. |
| You own the car at the end of the loan period, so you can do what you like with it |
You’ll need to make a down payment when buying a car |
| You don’t have to pay any extra charges for wear and tear |
New cars depreciate very quickly in the first few years, so if you can see yourself trading the vehicle shortly after the loan period ends, this could be disadvantageous |
| The car is yours to keep, and you are free to make any modifications or adjustments to the vehicle as you see fit |
Once the vehicle is out of warranty, you are liable for all repair costs. If you are leasing a car, it will almost always be in the warranty period |
| In the long term, buying a car is cheaper than leasing because the latter requires continued monthly payments |
More hassle to sell the car when you want to as opposed to returning a leased vehicle to the dealership |
Who is Buying a Car Best For?
Alternatively, buying a car is best for people who want to minimize the cost of the vehicle’s lifetime. Doing so requires more of a capital investment upfront, so buying a car is more suitable for people that have cash available to spend. Buying a car is also ideal for those that want to own the vehicle at the end of the period, with many people enjoying the feeling of owning something significant that they have worked hard to pay for.
Finally, if you are a car fanatic and want to make modifications or adjustments to your vehicle, buying is the best option, as you have the freedom to make these changes.
Conclusion
Ultimately, when it comes down to the choice of leasing vs. buying a car, both options come with clear benefits and drawbacks. So, as with many other things in life, the final decision will come down to your personal preferences and circumstances.
If you want to drive a nice, new car while still keeping more money behind for monthly expenses, leasing could be the right choice for you. However, if you intend on keeping a vehicle for a long time, then buying would be a better option, as you will own the car at the end of the finance term.
Our advice would be to consider your circumstances and choose the best option for you, and you can be riding into the sunset in your new vehicle in no time.
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