Buying vs. Leasing a Vehicle

Should You Buy or Lease Your Next Car?

You've seen the ads and considered your options, but you're still not sure what to do. There are pros to both options, so how do you decide? Buy or lease?

Leasing has changed a lot over the years. What was once reserved for corporate customers and luxury car buyers, now has options for just about any purchase or purchaser and has grown increasingly popular over the years. However, the majority of people still choose to purchase a vehicle.

Key Distinctions Between Buying a Leasing

Loan Value

• When you purchase a vehicle, the loan value is based on the entire cost of the vehicle minus any down payment or trade equity.
• When leasing, you are financing the depreciation that occurs during the lease term, plus fees. This typically results in a lower monthly payment than a purchase and allows you to acquire a more expensive vehicle than you might have otherwise been able to afford if you so choose.

Ownership

• When purchasing, at the conclusion of paying off your loan amount, you own the vehicle and the "pink slip" will be mailed to you.
• When leasing, at the conclusion of the lease term (typically 36 months) you return the vehicle to the dealership, settling any mileage or damage penalties, or your can "buy-out" the vehicle. When you buy-out a leased vehicle, you become financially responsible for the remaining cost of the vehicle. The vehicle is now considered used and financing may come at a higher interest rate.

Maintenance

• Several manufacturers, such as Toyota and General Motors, offer no-cost maintenance programs for the first couple of years or set number of miles (whichever comes first) on new vehicle purchases. These plans will cover your first couple of oil and filter changes and maybe tire rotations and sometimes come with 24-Hour Roadside Assistance. These benefits are in addition to any new-car vehicle warranties extended from the manufacturer.
• Leased vehicles will come with the standard new-car bumper-to bumper warranty as well but the lessee is responsible for the regular recommended maintenance.

Down Payment

• Both leases and purchases may require a money up front. Depending on the lender, a down payment on a purchase could be up to 10-20 percent of the purchase price. Leases are not likely to be that high. Both options allow for negotiable money down and it will impact your monthly payment for both.

Some items to consider:

After understanding these distinctions, its important to evaluate your driving habits, credit, and preferences to understand how these may impact your decision.

• How much do you drive?

  Leases have annual mileage restrictions that vary by vehicle make and model. The standard contract allows for 12,000 miles a year or 36,000 miles. If you drive farther, you could end up paying as much as $0.25 per excess mile upon lease return.

• Do you use your vehicle for business?

  Certain occupations, such as realtor, may allow you to write-off your vehicle lease as a tax deduction as a business expense. Check with your accountant to see if your occupation allows for this.

• Do you care for your vehicle and keep the interior and exterior in pretty good condition?

  If not, you could be on the hook for charges for damage outside "average wear and tear" when you return a leased vehicle.

• Are you planning any vehicle modifications?

  Any changes you make to the vehicle's equipment may have to be reversed before you can return.

• Do you love having a new car every few years?

  Either because you love upgrading technology, keeping up with the Jones' or that new car smell, leases are an affordable way to update your vehicle every few years. If those things aren't your focus, a long term investment in a purchase may be a better option.

• Are you Ok with always having a car payment?

  If you choose to only lease vehicles, you will always have a car payment. Even though the payment is cheaper than a purchase it will always be there as long as you keep leasing cars. Those who purchase and hold on to those vehicles, will find themselves without a car payment and enjoy the extra cash flow in their pockets long after they stop paying the higher monthly purchase note.

At the end of the day, you'll make the decision that's right for you. Either way, enjoy driving your new vehicle.