Is Car Leasing Better Than Buying Your Next Car?

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When it is time for you to get a new car, you may want to consider whether you should buy or lease it. Both choices have their benefits—and downsides. Knowing the facts can help you make a better decision.

Benefits of Buying a Car

Buying a car offers several advantages over leasing that might make it the better deal for you—especially if you want to keep it for a longer period. Although the monthly payments will be higher than if you leased, you will own the car when you finish paying for it. At that point, you are free to do with it whatever you want. The benefit is that there is an end to your payments—at least until you buy your next car—which could be years later.

As a car owner, you can also drive the car as much as you want without worrying about mileage limitations. There will also be no need to worry about problems while the manufacturer’s warranty is still in effect, but afterward, the cost of any repairs will fall on your shoulders.

A car you own builds equity the longer you make payments on it—the same as a house. It enables you to trade it later for the car’s value at the time—giving you a discount on your next vehicle.

The Downside of Buying a Car

Buying a car often lets you get a loan for six to eight years. Although a long-term loan will give you lower payments (the longer a loan, the lower your payments), there can be a problem if you need to sell it or if it gets destroyed. It may mean you end up paying for the vehicle years after you no longer have it—and end up paying for another car, too.

When you look at the issue of buying versus car leasing, Forbes concludes that it is a better financial option to buy—but it does depend on your unique needs. It is better if you plan on keeping the car for years because your payments have an end, and you end up owning the car.

When you buy, consider how fast the car depreciates. Investopedia says that new cars usually lose 15–25 percent of their value within the first five years. You can save some money if you buy one with a few miles on it—a certified pre-owned vehicle—and avoid the large depreciation on a new car when you drive it off the lot.

Benefits of Leasing a Car

If you do not mind ongoing payments, then leasing a car would be a better option—as long as the dealer performs maintenance for free. Although you will never own the car, you can choose how long you want to lease it—24, 36, 48, or 60 months. This can be a great plus if you are looking to use a vehicle for the short term.

Payments for leasing a car are less expensive than they would be making car payments on the same model. It can make leasing rather attractive because it will enable you to drive newer model cars at less cost than if you bought the car—and keep on doing so.

Lease agreements usually include maintenance and possible repairs. The car is still under the manufacturer’s warranty, which helps ensure that any problems get fixed at no cost to you. You will be responsible to get insurance for it.

When the lease ends, you can select another new or newer car and repeat the process—if you want. You may also have the opportunity to buy the car at the end of the lease. If that option is available, the price should be specified in the lease document—if buying is an available option.

Some car dealers may offer a lease with no money down, which would make it cheaper than buying the vehicle. Forbes says that some lease agreements will require you to make a down payment, which will lower your monthly bill. You probably should stay away from large down payments, Earnest says, because if the car is stolen or wrecked shortly after getting it, you will not get your money back. Instead of a down payment, some dealers may require an “acquisition fee”—but the cost will be about the same. You also need to pay sales tax on the car’s depreciated value.

Disadvantages of Leasing a Car

At the end of the lease, you will bring the car back to the dealer. They will carefully look over it for damage. If the wear and tear are deemed excessive, you will pay a fee for it and any damage.

If you decide you no longer need or want the car and decide to return it, you may pay a considerable fee for it. The amount may equal what you would have paid if you kept the car for the full term.

Driving a leased car more than the mileage limits means paying for it at a specified cost—which is usually so much per mile over the limit. ConsumerReports says these fees could range between 10 to 50 cents per mile. Most dealerships limit the mileage to 12,000 miles per year, but you can get limits set higher—for a price.

How to Get Your Car: Buy or Lease

Whether you buy or lease your next set of wheels depends on your preferences. If you prefer driving newer vehicles and do not mind limitations on miles, leasing is your ideal option. If you are only interested in a short-term lease, it could help you avoid further debt and possibly paying a large amount of cash upfront.

Getting a lease on a new car may also be easier to get than getting a loan on one. MarketWatch mentions that you probably will not need as much money down for a lease as you would for a loan. Sales tax is also less in most states for a lease on a car than for buying one.

Kevin O'Leary, a judge on CNBC’s “Money Court,” says that it is a good idea to lease a car for as long as its drivetrain is warranted. If longer than this, you can expect to have to add maintenance costs to your lease fee.

O'Leary also says that when you sell a car, you are recouping some of the money you spent on it. The car’s value can reduce the cost of your next vehicle. If you lease, you do not recoup any of the cost. If you include the money you get back when you sell your car, you have probably spent less on buying the car than on leasing one.

When you start looking for another vehicle, go to more than one dealer and compare prices—whether you are buying or leasing one. You can also look online. Car prices vary considerably between dealers, and so do car lease deals. Choosing whether it is better to lease or buy a car ultimately depends on your needs and preferences—and having a good credit score will help get a better deal, too.

The Epoch Times Copyright © 2022 The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.