Driving a brand new car is exciting. It's a little hard to describe, but once you feel it, you never forget it. Luckily, there are a few different ways to become the driver of a new vehicle. Some people like the freedoms and benefits that come with ownership, while others prefer the security and luxury lease vehicles allow. If you're unsure which side of the lease vs. buy debate you land on, this blog is for you. We're looking at leasing vs. buying a car and weighing the pros and cons of each.
Pros and Cons of Buying a New Car
When you purchase a car, whether outright or through an auto loan, there are some notable benefits. Primarily, ownership. When you buy your vehicle, there are no limits on how much you can drive, how long the car is in your possession, and what modifications you make. Purchasing is often more economical in the long run, especially if you plan to own and drive your vehicle after it's paid in full. When you do go to purchase again, the vehicle you now own becomes an asset you can put toward your next vehicle purchase.
When you consider leasing vs. buying a car, the initial investment of ownership does tend to be much higher. A significant down payment will prevent you from being upside down on your auto loan, and monthly payments tend to be higher. When the time does come to sell, pricing is not guaranteed; you may not be able to get a price you agree with when you trade your car in. Additionally, after your warranty period runs out, all repair costs come out of your pocket, which can add up.
Pros and Cons of Lease Vehicles
The decision to lease a vehicle purchase still provides you with a nice, new car, but instead of full ownership, it's more like you're paying to use the vehicle for a pre-determined period of time. With lease vehicles, there's no need for a down payment, sales tax is lower, and monthly payments tend to be substantially less than a new vehicle loan. Also, leasing gives you the freedom to upgrade every few years, putting you in a new, up-to-date ride about every three years. The trade-in process is much easier than selling a car, lessees are able to walk away hassle-free when their lease ends and start fresh. Also, a lease also has the benefit of zero negative equity.
At the end of your lease term, the car once again belongs to the dealership who holds your lease agreement. When you consider leasing vs. buying a car, lease agreements generally limit things like annual mileage, wear and tear, and vehicle modifications. These restrictions are essential for the dealership to know the approximate value the vehicle will hold at the end of your lease agreement.
The Bottom Line
At our dealership, for instance, we show you the residual value of your lease before you sign the contract. You'll know going into a lease agreement what your buyout amount will be when turn-in time comes. When you buy a new car, its trade-in value drops considerably. Chances are, unless you made a large down payment, that you'll owe more on your new car loan than it's worth after just one year. Alternatively, having a shorter loan term balances the depreciation of the vehicle with its resale value, but this results in higher monthly payments.
When the decision comes to buy or lease a car, there isn't always a clear answer. If you'd prefer to drive the latest models, skip the down payment, and pay less per month, a lease may be the best choice for you. If you're interested in long-term financial benefits and the rights that come with ownership, however, your best bet might be buying. To take a deeper look into the car buying process, check out our free eBook, Car Buying 101: