Lease Or Buy? How To Finance Your Next New Car

2. The Case for Leasing

Leasing is popular with drivers who want to enjoy the perks of driving a new car every few years without committing to long-term ownership. There are several key benefits to consider.

• Lower Monthly Payments

  One of the primary advantages of leasing is that it usually results in lower monthly payments compared to buying. Since you’re only paying for the depreciation of the car over the lease term (rather than the full value of the car), your payments are generally lower than loan payments for the same vehicle. This allows you to drive a newer, more expensive model than you might be able to afford if you were buying outright.

• Fewer Maintenance Concerns

  Leasing a car also means you’ll likely avoid major repair costs. Since most lease terms are for two to four years, the car is typically covered under the manufacturer’s warranty for the entire duration. This means that as long as you stick to the mileage and maintenance guidelines, you won’t have to worry about unexpected repair bills, which can be a significant expense when owning a car long-term.

• Always Driving New

  For drivers who enjoy having the latest technology, features, and safety upgrades, leasing is an attractive option. When the lease ends, you simply return the car and lease a new one, allowing you to enjoy the newest models without worrying about selling or trading in an older vehicle.

• Tax Benefits for Business Owners

  If you use the car for business purposes, leasing may provide some tax advantages. In many cases, business owners can deduct a portion of their lease payments as a business expense, depending on how much the car is used for work. However, the specifics vary by tax laws and should be discussed with a financial advisor.

3. The Downsides of Leasing

While leasing has its perks, it’s not without its drawbacks.

• No Ownership Equity

  When you lease a car, you’re essentially renting it for a fixed period, which means you won’t own it at the end of the term. You’re left with no equity, and unless you decide to buy the car at the end of the lease, you’ll have to start a new lease or purchase a different vehicle. Over time, these payments add up without building any ownership in the vehicle, unlike a car loan, which eventually results in full ownership.

• Mileage Limits

  Leases typically come with mileage restrictions, which usually range from 10,000 to 15,000 miles per year. If you go over this limit, you’ll be charged a per-mile fee that can add up quickly. For drivers who log a lot of miles, this can make leasing less attractive. However, some lease agreements allow you to buy additional miles upfront, which can be more cost-effective if you know you’ll be driving more than the standard limit.

• Wear-and-Tear Charges

  At the end of the lease, you’ll be responsible for any excessive wear and tear on the vehicle. This includes anything beyond normal use, such as dents, scratches, or interior damage. If the dealership deems the damage excessive, you may be charged additional fees to cover the cost of repairs.

• Long-Term Costs

  While leasing typically results in lower monthly payments, it may end up being more expensive in the long run if you continue leasing cars year after year. When you buy a car, you’ll eventually pay off the loan and can continue driving the car payment-free. In contrast, leasing requires ongoing monthly payments with no end, which can become a significant expense over time.

4. The Case for Buying

Buying a car is the traditional way to finance a vehicle and offers long-term benefits that leasing doesn’t. Here are some of the advantages of purchasing a new car.

• Full Ownership

  The biggest benefit of buying is ownership. Once you’ve paid off the loan, the car is yours to keep. You can continue driving it for as long as you like, and you don’t have to worry about mileage limits or wear-and-tear fees. Owning a car can be particularly advantageous for drivers who plan to keep their vehicle for many years, as it allows them to enjoy a period without monthly payments once the loan is paid off.

• No Mileage Restrictions

  Unlike leasing, buying a car means you can drive as much as you want without worrying about mileage limits. This makes buying a better option for drivers who log a lot of miles, such as commuters or road-trippers. It also gives you the freedom to take long trips without worrying about incurring additional fees.

• Customization

  When you own the car, you have complete freedom to customize it to your liking. You can modify the vehicle with aftermarket parts, upgrade the audio system, or change the paint color without worrying about violating the terms of a lease agreement. This level of freedom can be appealing to drivers who want to personalize their vehicle.

• Long-Term Savings

  While buying a car often results in higher monthly payments than leasing, it can be more cost-effective in the long run. Once the loan is paid off, you’ll have the option to drive the car payment-free for several more years. This can lead to significant savings over time, particularly for drivers who plan to keep their car for a long period.

5. The Downsides of Buying

Despite the benefits of ownership, buying a car has its disadvantages.

• Higher Monthly Payments

  The most obvious downside to buying is that it usually results in higher monthly payments compared to leasing. Since you’re paying off the full cost of the car, plus interest, your loan payments will likely be more than the monthly cost of a lease for the same vehicle. This can put a strain on your budget, especially if you’re financing a more expensive car.

• Depreciation

  Cars lose value over time, and depreciation is one of the biggest financial disadvantages of buying. New cars typically experience substantial depreciation in value during the first few years of ownership. If you plan to sell or trade in the car after only a few years, you may end up with less money than you originally paid, and your car may be worth less than what you still owe on the loan.

• Maintenance Costs

  Once the manufacturer’s warranty expires, you’ll be responsible for all maintenance and repair costs. As the car gets older, it may require more frequent and costly repairs, which can add up over time. Drivers who plan to keep their car for many years should factor in the cost of maintenance and repairs when deciding whether to buy or lease.

6. Making the Decision: Lease or Buy?

Choosing between leasing and buying ultimately depends on your personal preferences, financial situation, and driving habits.

If you enjoy driving new cars, prefer lower monthly payments, and don’t mind the restrictions that come with a lease, leasing may be the better option for you. It allows you to upgrade to a new car every few years and avoid the hassle of selling or trading in a vehicle.

On the other hand, if you want to own your car outright, drive a lot of miles, or plan to keep your car for a long time, buying may be the better choice. While it requires a larger upfront investment, it can save you money in the long run and provide more flexibility and freedom.

7. Financing Options

Regardless of whether you lease or buy, it’s essential to shop around for the best financing options. Interest rates, loan terms, and lease terms can vary widely depending on the lender, your credit score, and the type of car you’re financing. Be sure to compare offers from multiple lenders or dealerships to ensure you get the best deal.

Conclusion

Both leasing and buying offer distinct advantages and disadvantages, and the right choice depends on your individual circumstances. By considering factors such as your budget, driving habits, and long-term plans, you can make an informed decision on how to finance your next new car.