Buying Vs. Leasing

Buy vs. lease.  It’s an age-old question in car buying, but while both sides have their loyal supporters, most people looking to obtain a new car are not positive which they should choose because they don’t know which option is right for them. Because of the confusion often associated with buying vs. leasing, we are going to break down the main benefits and drawbacks of each and compare the two so that the next time you go in for a new car, you can confidently choose the option that works best for you!

Overview of Buying

When you purchase a car, you pay for the entire cost of the vehicle, regardless of how long you keep it.  You will typically make a down payment, and then have a set monthly payment based on what is still owed, the length of the agreement, and your interest rate.  At the end of the pay period, you own the car.  When you decide to give up the vehicle, you will trade it in or sell it for its depreciated value.

Overview of Leasing

When you lease a vehicle, you only pay for the depreciated value over a set period of time.  If you do pay a down payment, it is typically lower than one you would make on a purchased vehicle.  Your monthly payment is based on the length of the lease, the residual value of the car (the amount the car is expected to be worth at the end of the lease), and the money factor, which is similar to interest.  When the lease is over, you either return the vehicle or purchase it for its depreciated value.

Buy vs. Lease

Payments:

  • Buy: Your down payment and monthly payments will be higher, but when you reach the end of your agreement, the payments stop and you own the car.
  • Lease: Your down payment and monthly payments will be lower, but at the end of the agreement you either turn the car in or buy it. Either way, you will likely continue to have monthly payments.

Driving Restrictions

  • Buy: There are essentially no driving restrictions. Since you own the car, you can drive as far as you like for as long as you like.  There is also no penalty for excessive wear.
  • Lease: You will likely have a maximum mileage limit, around 12,000-15,000 miles per year.  Going over these miles will cost you.  There is also often a penalty for excessive wear.

Equity

  • Buy: Buyers have the ability to build equity on their vehicle.  However, owners can also find themselves in an “upside-down situation.” If the car depreciates at a faster rate than you are paying it off, you can get into the situation where the car comes to be worth less than what is still owed.
  • Lease: Since you do not own the car, you are not building equity. However, lessees will never find themselves in an upside-down situation.

While it’s up to each individual buyer to decide which option fits their needs, we hope this breakdown helps you decide whether buy or lease is right for you!

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