Both car leasing and car buying have their benefits and can make sound financial sense. However, there are definitely some advantages to leasing over buying. Let’s take a look at the pro’s and cons of each.
Car Leasing Benefits
Pro’s of Leasing
1. You don’t own the vehicle, so there’s no long-term financial commitment.
2. Lease payments can be significantly lower than monthly loan payments because you’re only paying for the car’s depreciation (decline in value) over the length of the lease, compared to the length of the car’s life. In some cases you also don’t have to put in a down payment to start the lease.
3. It’s easy to walk away after the end of the lease – simply return the vehicle, pay any end-of-lease payments, and you’re done.
4. If you have your heart set on a luxury vehicle, you’re in luck: many luxury vehicles can be leased for the same or lower monthly payments as the monthly loan payments for a less-expensive economy vehicle.
Now, let’s take a look at some of the downsides to consider before leasing a vehicle.
Cons of Leasing
1. You’ll have to pay extra charges for any excessive wear and tear on the vehicle that occurs during the leasing period.
2. A lease doesn’t give you any financial equity in the vehicle.
3. If you make any modifications to the vehicle, you have to remove them before you return the car because the lessor will want to have it returned in sellable condition.
4. Most leases will stipulate a mileage limit, typically 12,000 to 15,000 miles per year. However, you can often negotiate a higher mileage limit.
What are some of the benefits to buying a car? Let’s examine your options.
Car Buying Benefits
Pro’s of Car Buying
1. You get to own your car.
2. Significant freedom of choice: you can pick virtually any car that’s the size you want at your price point. You can also make any modifications you want, like revamping the audio system or picking new rims.
3. You can drive as many miles as you want – however, higher mileage will lower the car’s trade-in or resale value.
4. You can sell the car whenever you want; you’re not fixed in for the length of a lease.
While there are some great benefits to owning a car, there are also some pretty big downsides to keep in mind, too. Let’s take a look at some of the negatives you should be aware of before deciding to buy.
Cons of Car Buying
1. Monthly car loan payments are often much higher than monthly lease payments.
2. Much more of your cash is tied up in the car, which depreciates in value over time.
3. You’re responsible for trading in or reselling the car.
4. If you’re looking on a lot, some of the newer (1- and 2-year-old) cars available might be formal rental cars, which get a lot more wear and tear. Leasing a vehicle might give you better options: leasing companies carefully inspect all their vehicles before putting them up for lease.
As you can see, there are some significant benefits to car leasing over car buying – no long-term financial commitment; lower monthly payments; and the option to get a new car every two to four years once the lease on your current car ends.