Should You Lease or Buy a New Car? Things to Consider
Vehicles are costly but essential investments, and you want to make sure you get the level of quality and comfort you pay for. When you have a low budget, you might be forced to get a used or older model that doesn’t provide the performance and reliability you need. Leasing a car allows you to essentially rent it while you decide whether you want to buy it for a preselected amount after a certain period of time; buying requires a down payment and taking out an auto loan. Which option is right for you?
Leasing may seem like the fast ticket to a great ride, but it can be expensive and put you in financial trouble down the line. Buying, on the other hand, isn’t always feasible, especially if you aren’t able to get approved for a loan big enough to purchase the model you’re interested in. This guide will help you consider the most important points when deciding between leasing or buying a car. With these factors in mind, you’ll be able to confidently make a decision that allows you to enjoy a vehicle that’s just as well-suited to your lifestyle as your budget.
In most cases, leasing results in lower monthly payments than taking out an auto loan. However, you do not actually build any equity or have any rights to the vehicle after the end of your lease term. Most auto leases last between 36 to 48 months, and when they end, you can either return the car to the vendor or pay off the remaining amount to own it.
For those who cannot afford higher monthly payments, leasing could be more effective in the short-term. Not only are you able to get a better model for less, but you’ll also have three to four years to save enough to make a final purchase. You could also ultimately decide to return the ride and buy a different model with your own money instead. For those who decide to buy outright, monthly payments are difficult to adjust. One option is refinancing an auto loan, which can help you save money by lowering interest rates, extending your term or redefining the duration of your lease. You can get the best refinance rates by comparing multiple auto loan lenders online for free.
There are many models available for leasing that may otherwise be unattainable for purchase at the time. The sale price of most automobiles is far higher when buying instead of leasing, so you’ll have to closely compare different makes and models. If you realize that the type of car you need isn’t feasible with your current income, then leasing it could be a better alternative. You can also decide to try a vehicle for a few years and see whether it’s really the best fit for you.
Keep in mind that most auto lease agreements come with a 10,000-mileage limit per year, so you’ll owe the dealer money per mile if you exceed this amount. If you drive a lot for work or enjoy road trips, this could be a major setback. Consider your lifestyle as much as your income and personal preferences; there is greater freedom with how you use a vehicle when you buy. One of the other perks many people enjoy about leasing is the option to get a new vehicle every few years. This helps them explore different makes and models, easily upgrade or downsize to suit their needs and keep a sense of excitement in their lives.
If you’re trying to build assets and grow your net worth, then buying could be more advantageous, especially if you manage to pay it off in full and keep it in your possession for many years. If you decide to go for a gently used model, you’ll be able to spare yourself the pain of high interest rates and depreciation. However, an auto loan for your own purchase can still be worthwhile if you keep the vehicle in good condition and even install some upgrades over time.
Some people are eager to lease because it allows them to obtain a luxury ride they would otherwise be unable to acquire. While it may be enjoyable, it ultimately doesn’t leave you with anything to show for it unless you decide to finalize a purchase at the end of the term. Otherwise, you simply lose the money you spent, return the vehicle and start the process all over again. Consider your long-term goals and needs; in many cases, people find that paying off their own car is one of the biggest milestones toward living a debt-free life. It doesn’t happen overnight, but you can be motivated to work harder and be more financially disciplined if you feel like there’s something worthwhile waiting at the finish line.
A common mistake people make when considering the real cost of a new vehicle is omitting the price of insuring it. Monthly premiums can tack on an additional $100 to $200. Combined with gas, this can make what seems like a reasonable car payment difficult to afford. You should never take less coverage just to drive a flashier car; a less expensive but equally reliable model is ultimately more valuable as you can afford to not only drive it every day but also maintain good coverage.
Leased cars tend to have higher insurance requirements, which are stated by lenders in the term agreements. You may be able to purchase coverage directly through the dealer, or you may have to demonstrate proof of coverage through a private insurer of your choice. At a minimum, expect to pay for comprehensive and collision coverage policies on a leased car. You may also need to pay for uninsured/underinsured motorist insurance, personal injury protection and/or liability. When you purchase your own vehicle, you are still required to insure it per state regulations, but there is more flexibility in the limits and policies you add on. It’s helpful to compare free auto insurance quotes prior to making a final decision on which model to invest in.