How to know if leasing or buying a vehicle is the right choice for you.
The short answer is that there is no one right answer. It depends entirely on your individual circumstances, including current finances and lifestyle. Here are a few things to keep in mind when deciding whether leasing or buying a car is the right decision for you:
The major difference between buying and leasing a vehicle is the idea of equity. Similar to renting an apartment, when leasing a vehicle, you pay a monthly amount, but do not retain ownership once the lease is over. Therefore, you’re not able to sell the car eventually and make any money back.
There are a few important things to keep in mind with the vehicle itself. Firstly, you are discouraged from customizing a leased vehicle. This means any custom paint, appearance modifications or audio and video enhancements you add will need to be removed before returning the car at the end of the lease. On the other hand, if you decide to buy a vehicle, you’re free to customize it as you wish.
One benefit to leasing a car is the option of driving a nicer, fancier car than you could typically afford to outright purchase. As leases usually last about three years, you could find yourself behind the wheel of a brand new car every few years if you decide to lease.
What You Can Afford
A large factor when deciding whether to lease or buy a vehicle is figuring out what you can actually afford. Various upfront and long-term costs might affect your decision.
Typically, monthly payments for leases are lower than that of a loan, especially when interest rates are factored into the total amount. There are upfront costs associated with both—when buying a car, your down payment will cost you a chunk of money, and lease agreements can require an upfront payment along with various document, acquisition and potential termination fees.
When it comes to upkeep and maintenance, some lease agreements cover certain maintenance and repairs (be sure to look into your specific lease as it differs). New cars typically have a three-year warranty associated with them, and it’s possible to purchase extended warranty as well.
If you calculate the long-term expense of buying or leasing a car after a period of six years or more (this would mean two separate three-year leases), after factoring in down payments, monthly payments, interest rates, and finally resale value, you’d probably find that the difference in cost isn’t actually that significant. It’s the upfront costs that hold the biggest difference.
The kind of lifestyle you live might make a difference whether you decide to lease or buy your vehicle.
As leased cars come with a fairly modest mileage limit, you’ll have to pay charges if you exceed this limit or else negotiate a higher mileage at a higher cost. If you know you’ll be driving a lot, it might be best to purchase the vehicle outright (while keeping in mind that high mileage lowers a vehicle’s resale value). Additionally, excessive wear and tear of a leased car is the responsibility of the leaser, meaning a lease might be more appropriate for someone who drives less and therefore keeps the condition of the car in good shape.
Leasing a car gives you the freedom of a shorter timeline (typically two to four years), but the cost of terminating the agreement early can be quite costly. Alternatively, you are free to sell or trade-in your vehicle at any time if you own it. If necessary, money from the sale can even be used to pay off any remaining loan balance.
Work with a financial advisor or accountant when deciding to buy or lease a vehicle.
If you’re still unsure, talk with a financial advisor or accountant with experience in automotive or financial planning. They'll help you understand your financial constraints and options and offer assistance throughout the process. Vexxit will match you with a qualified and top-rated professional for free in just a few simple steps.