When You Should Lease & When You Should Buy
Are you in the market for a new car? Great! Here’s the question: What’s the better option – to buy a new car or to lease one?
There’s no single one-size-fits-all answer that can work in every situation when it comes to the debate between buying a car vs. leasing a car.
Let’s say you’re okay with getting a used car.
In that case, buying, rather than leasing is the more cost-effective option. But if you want to buy a brand new car, with the latest safety features, then leasing makes sense.
Buying a Car vs. Leasing a Car
#1: Monthly Costs
The monthly lease payments are generally lower than the car loan payments. Car loan payments are based on the purchase price and don’t take depreciation into account. Lease payments take depreciation into account.
However, when you pay off the loan, you’ll get full ownership of the car. Paying off the lease payments doesn’t mean that you’re going to own the car: It means having to renew the lease and continue making the monthly payments, if you want to hold on to the vehicle.
Also, leasing companies have much higher standards for insurance, such as comprehensive and collision coverage. This means your insurance premiums are higher when you lease a car compared to buying one.
#2: Other Costs
What about the Down Payment?
When you lease a car, you’re essentially putting a down payment on a vehicle that you will not get to own at any point. If the down payment is low, which means 10% to 20% of the cost of the vehicle, then leasing makes sense. Otherwise, just buy the car.
What about the Cost of Repair?
The cost of repair will depend on how well you take care of the car. If you’re a safe driver and know how to take care of your car, then you shouldn’t have to worry about this. But if the cost of repair is on the higher side, then leasing is the better option as the vehicle is under warranty for the entire duration of the lease agreement.
What about the Depreciation?
Auto leases take depreciation into account. Leasing companies set a mileage limit on the car, usually 12,000 miles a year. If you go over this number, then you could be hit with a penalty of about 10 cents for each extra mile. So if you drive a lot, then buying a car is the better option.
Nobody likes to be tied down to the same car for too many years. Every year, there’s a brand new model in the market, with the latest technology and fancy gadgetry.
Leasing is a more flexible option than buying a car as you can switch to a flashy new car when the lease ends. This is a great option for those who like to change their cars every year or so.
Buy or Lease? There is no perfect answer to this question. There is a time to buy and a time to lease. It depends on your specific requirements and varies from one individual to another. Do your own research before coming to a decision.