Leasing vs. Buying

Casual discussions centered on buying versus leasing an automobile often evoke strong opinions on both sides of the argument. The reason for this is that the decision includes an emotional component in addition to the cloudy financial aspects. Many car buyers focus on the bottom line above all else. Others value the continuous cycle of driving in a new car. Some people refuse a process that does not result in them owning the car, regardless of any potential savings.

However, many more people find themselves somewhere in the middle of all of these opinions, and they are attempting to find the right option for them. Unfortunately, there is no simple and right answer. It depends very much on one’s personal situation and needs. Here is a consideration of the advantages and disadvantages of both choices.

Leasing Advantages

There are short-term cost advantages associated with leasing a vehicle. The monthly payments for a leased automobile are far less than the payments required on a loan for the same vehicle. This makes certain vehicles, such as luxury models, financially feasible for some people. In addition to monthly payments, a leased vehicle generally requires a down payment that is significantly less than the down payment required for a purchased vehicle.

Other savings include diminished sales tax because the customer only pays tax on the financed portion. In addition, because the typical lease has duration of three years, the factory warranty covers any necessary repairs. Another attractive feature of leasing is the ability to drive a new car every several years. This is not simply an issue of vanity. Cars older than three years begin to require maintenance that the leaser does not have to pay for. Another benefit is that at the end of the contract, leasers simply turn the vehicle in and walk away.

Leasing Disadvantages

The primary disadvantage of leasing is that one never achieves equity in the vehicle. If the leaser where to buy the vehicle at the conclusion of the contract, it would result in a higher cost than if they had purchased it. Leases also carry restrictions, such as yearly mileage limits.

If the leaser exceeds that limit or breaks other restrictions, then they are assessed additional charges that can change this comparison. Conditional costs are the reason that comparing leases or comparing a lease to a purchase can be a difficult process. Perhaps the most serious disadvantage is that it is near impossible for the leaser to get out of the lease if their financial circumstances change.

Buying Advantages

The big obvious advantage to purchasing a car is that the buyer owns and has equity in it. In addition, the buyer can customize it and enhance it. They can also drive it as far and as often as they please. Buyers also have the option of not having infinite payments. When the buyer pays the vehicle off, they can continue to drive it for as long as it is practical. If the buyer’s financial circumstances change, they can sell the vehicle and purchase something that better fits their budget.

Buying Disadvantages

Down payments and monthly payments are substantially higher than the cost of leasing the same vehicle. Depending on a buyer’s financial circumstances, this may limit the options that are available to them. Once the warranty expires, all maintenance and repair costs are the responsibility of the vehicle owner. This can introduce large additional costs if the car ever requires a major repair. In addition, when you are ready to upgrade you must go through the hassle of selling the car. The trade-in process can reduce much of the hassle but the owner can often achieve a better deal selling. Finally, cars generally depreciate, limiting it as an investment.