It’s time for a new car, and you’re wondering whether it is better to lease or buy. Here are some factors to consider when deciding whether you should lease or buy your next car.
How Is Leasing a Car Different Than Buying?
Simply put, when you buy or finance a vehicle, you will own it once you have paid for it in full. When you lease a vehicle, you do not own it and have to return it when your lease term expires. Although, you may have the option to purchase the vehicle at the end of your lease, says Consumer Reports.
Are the Costs Higher To Buy or Lease a Vehicle?
Typically, if you’re buying and financing a car, the monthly payments will be higher as you are paying for the full cost of the car plus interest on the loan, says Consumer Reports. Lease payments tend to be lower since you are not paying for the full price of the vehicle. You’re essentially paying for how much the car’s value depreciates while you drive it, according to Edmunds.
Upfront Costs of Buying a Vehicle
Consumer Reports notes that the initial costs of buying a vehicle include:
- Down payment (or the cash price if you’re paying in full)
- Registration costs
- Other applicable fees
Upfront Costs of Leasing a Vehicle
If you’re leasing a vehicle, according to Consumer Reports, you’ll typically have to pay:
- A down payment
- A security deposit
- The first month’s lease payment
- Registration costs
- Any other applicable fees
To get an initial idea of whether leasing or buying a vehicle would be more expensive, you’ll need to add up all these costs and compare them.
Are There Additional Expenses to Consider?
From maintenance costs to monthly payments, there are other potential expenses to consider when deciding whether to lease or buy a vehicle.
You may want to consider maintenance expenses that come with leasing or owning a vehicle. With most leases, which are typically three years, the car will be under warranty for the duration of the lease, says Edmunds. (Standard auto warranties are 3 years or 36,000 miles, although some are longer, says Autoblog.com.) So, you’ll likely only be paying for routine maintenance, such as oil changes, with a leased vehicle. As a purchased vehicle goes beyond its warranty, you’ll typically have to pay out of pocket for any necessary repairs and routine maintenance.
Mileage and Wear and Tear
When you lease a vehicle, the contract usually includes a maximum number of miles you can drive each year. If you exceed that mileage over the duration of your lease, Edmunds states that you will typically be charged 15 to 25 cents for each mile you’ve gone over the allowed mileage. Additionally, if there is excess wear and tear on the vehicle, you may incur fees at the end of your lease, says Edmunds.
Ongoing Vehicle Payments
While leasing a new car every few years can be appealing, consider if you want to be making monthly payments indefinitely. Consumer Reports notes that if you continue to lease cars, you’ll always be paying for a vehicle. If you buy a vehicle, however, those monthly payments stop once the car has been paid for, says Edmunds. If you keep the car after it’s paid off, you can then save that money or put it toward other expenses.
There are pros and cons to both leasing and buying a new car. By considering how either choice may affect your budget and other wants and needs, you’ll be better prepared to make the decision that’s right for you.