Leasing Vs Buying Auto: Which One Saves You More Money in the Long Run?

A new or used vehicle is one of the most significant expenses individuals and families incur besides housing costs. When it comes to acquiring a car, there are two primary options: leasing or buying. Both have their advantages and disadvantages, so it’s essential to understand which option will save you more money in the long run.

Leasing a car versus owning one is a debate that has been ongoing for years. On one hand, leasing offers lower monthly payments and the opportunity to drive a new car every few years. On the other hand, owning a car provides the freedom to modify the vehicle, no mileage restrictions, and the ability to build equity in the car over time.

But which option saves you more money in the long run? In this article, we will tour the financial pros and cons of leasing a car versus owning one, helping you to make an informed decision about which option is the best fit for your budget and lifestyle.

Pros and Cons of Leasing a Car

When you lease a vehicle, you pay to drive it for a specific limited time. The average lease is 24 to 36 months, although you can find even longer leases. Most leases come with the choice of a 12,000- or 15,000-mile annual allotment.

With that said, here are the pros:

• Lower Monthly Payments . Leasing typically has lower monthly payments compared to financing because you’re only paying for depreciation during your lease term.
• No Down Payment. Many leases don’t require any down payment upon signing.
• Warranty Coverage. Most leased vehicles are under warranty throughout the entire length of your contract.
• Newer Cars. Since most leases last between two and three years, they always have access to newer cars with updated features.

Meanwhile, here are the cons:

• Mileage Restrictions. If you exceed the allotted mileage limit on your lease agreement (usually around 10k-15k miles per year), then you may face additional fees.
• No Equity. Unlike owning a car outright where equity builds up over time, when leasing an automobile, there is no equity building. You don’t own the car but rather rent it out from someone else who owns it.
• Early Termination Fees. There’s also an early termination fee if you decide to end the contract early, and an acquisition fee (also called a lease initiation fee).

Assets and Liabilities o Buying A Car

Buying a car means that you own it outright and you build equity in the vehicle with monthly payments (if you finance the purchase). Most car loan terms are four-to-six years.

Here are the pros of purchasing your own car:

• Ownership. Once all payments are made on time according to schedule, then ownership transfers fully into the hands of the buyer without any further obligations beyond regular maintenance.
• Unlimited Mileage. With ownership comes unlimited mileage usage without the fear of penalties due to exceeding limits.
• Customization Options. Owners can customize their vehicles however they want without worrying about violating any restrictions imposed by the lessors.

Here are the cons:

• Larger Monthly Payments. Financing usually requires larger monthly payments than leasing because buyers must pay off both the principal amount and interest charges accrued over the lifespan of the repayment plan.
• Limited Warranty Coverage. Warranties offered through dealerships tend to have shorter durations compared to warranties provided to manufacturers directly.
• Vehicles Depreciate Over Time. New cars can lose anywhere from 15% up to 25% of their value in the first five years of ownership.

Lease vs. Buying a Car: Which is Better?

Leasing a car involves paying a monthly fee to use a vehicle for a set period of time, usually two to three years. At the end of the lease term, you return the car to the dealership. This comes with the ability to drive a new car every few years, lower monthly payments than buying, and minimal maintenance costs due to warranty.

On the flip side, buying a car involves taking out a loan to purchase the vehicle. Once the loan is paid off, you own the car. This helps with the ability to build equity in the car over time and modify or sell the car at any time, not to mention the absence of mileage restrictions.

Ultimately, whether you should lease or buy a car depends on your individual preferences and financial goals. If you prioritize low monthly payments and driving a new car every few years, leasing may be the better option. If you prioritize ownership, building equity, and don’t want to have mileage restrictions, buying may be the better option. Still, consider your priorities and budget.

Conclusion

While leasing may offer lower monthly payments and the ability to drive a new car every few years, owning a car allows you to build equity and potentially sell or trade in the vehicle for a profit. By weighing the pros and cons and considering your personal circumstances, you can make an informed decision about whether leasing or owning is the best choice for you.

FAQs

Q: Is it more advisable to buy or lease a car?

If you prioritize low monthly payments and driving a new car every few years, leasing may be the better option for you. If you prioritize ownership and building equity in a car over time, buying may be the better choice. It’s important to carefully consider your circumstances before making a decision.

Q: What may be best for the wallet?

A: When you buy a car, you own it outright and can modify or sell it whenever you want. With a lease, you are essentially renting the car for a set period of time and do not own it at the end of the lease term. While a purchase is something you need to maintain, owning may be the best option for you only if you are actually financially stable. This may be best for the wallet.

Q: When should you choose to lease versus buy your next vehicle?

A: If you are on a tight budget and want to keep your monthly payments low, leasing may be a better option than buying. Lease payments are typically lower than loan payments for the same car. Short-Term Transportation: If you only need a car for a short span of time, such as two to three years, leasing may be the better option.