Cars: Buying vs. Leasing
By Carlos Filio
Do you know if you’re going to rent or buy your first car? We are here to help you decide by letting you know the pros and cons of buying vs leasing a car.
We all know millennials are killing things like napkins and owning homes, but what’s the status on car ownership? In the last few years, the number of Americans leasing cars has increased – so much in fact that car leasing now accounts for one third of all car sales.
But still, that doesn’t mean that you need to hop on the leasing bandwagon right away. Like all big financial decisions, this choice is personal to you, your needs and your financial situation. Still – we wouldn’t be who we are if we didn’t offer you a little guidance in making that decision though, would we? Below is a list of all the factors you want to consider in making this purchase decision. Give it a read, tally up your thoughts, and see how your answers add up.
- What Are You Prepared to Pay?
The big upside to leasing a car is that it often requires a very low, or sometimes no, down payment upon purchasing the vehicle, while purchasing a new car can cost you more than $34,000, and most people will need help financing their new wheels, taking out loans and paying it off monthly anyway.
However, if you’re in a decent financial situation, taking out the auto loan could be a good move for you financially. Some people will choose to pay off their vehicle overtime to build credit. So, if the down payment doesn’t scare you off, you could consider buying over leasing.
- Time You Want the Car
Not to psychoanalyze your life or anything, but do you find yourself getting tired of things after a short period of time? Do you find yourself ending all your relationships after three dates or never being able to sit through an entire movie? OK so these may be a little extreme compared to car buying, but the point is: are you a short-term thinker?
If you’re thinking short-term, you should be thinking of leasing because keeping your car for longer than 3 years is actually cheaper in the long run. Still, with most leases only being 2 to three years, your monthly payment will be about one third lower than if you had purchased the same car on a 5-year lease.
- Mileage and Usage
How long is your daily commute? Do you just zip around the corner and find yourself at work? Are you driving an hour both ways every single day? Or are you just a lover of road trips? The mileage you will be putting on your car is another huge factor to consider when deciding between leasing and buying.
Most leases have a mileage limit. Don’t let that scare you off, though, because the limit is usually about the average amount of miles per year that you would drive anyway. Still, if you know that you are always on the road and are likely to drive more than 10,000 to 15,000 miles in a given year, you could have to pay up to 25 cents per additional mile. In fact, the average 35 to 54-year-old in America drives just over 15,000 miles per year, in which case leasing might not be the option for you. This factor is likely to be increased by having kids, driving them back and forth from school and other activities, and having a long commute to work – something over 30 miles.
Now, you might be saying to yourself, “How am I supposed to know how much I drive annually?! I can’t go back in time to keep track of that!” And you’d be right! Nobody expects you to have a full log of every mile you drive every year right off the bat. Instead, track your mileage at a smaller scale and take the number of miles you’ve driven in one week (an average week – not one where you took the week off of work or took a really long road trip), and multiply that by 52 (the number of weeks in a year).
Another thing that comes with high mileage is the wear and tear on the vehicle at the end of it all. If you’re returning a leased vehicle in poor condition, you’ll likely be paying some fees. So, take that into consideration when you’re leasing a car, or consider getting wear-and-tear insurance to help combat this. If you’re buying a car, however, you can have the mindset of “I’m going to drive this baby until it dies” and not worry about the diminishing condition, but you might be trying to sell it back in a few years. Your buy-back price will be lower on a more worn-down vehicle, so again, consider your goals here.
- Tech-Freaks and Customization Champions
Do you buy the latest edition of your smartphone every time it comes out? Do you always have to have the next gaming console? Are you just fascinated by technology and need to have the latest and best at all times? If this is true for you, then you might want to lease! Going along with that short-term mindset, leasing a car allows you to always be rotating into a new car with the latest features like backup cameras, parking assistance, and collision warning systems.
On the other hand, you might be really into personalizing your vehicle, and all of this fancy technology could just be your next upgrade. Or say you want a very specific color, custom rims, or anything that makes your car more “you,” buying is definitely the way to go.
- Thinking for the Future
What sort of life changes do you see coming your way? Obviously, some are unpredictable, like losing your job, but maybe you’re planning a big move in a couple of years, or maybe are planning to start a family – your car needs might change with these plans. In these foreseeable scenarios, a lease could prove to be the perfect temporary solution as your “in-between-ride.” In our unpredictable cases of emergency, it may be better to have a car that you own, that you could then sell back without having to pay a termination fee on the lease.
- New-to-You
At the end of the day, the perfect happy medium between leasing and buying a car might just be buying a used car. You may have to deal with certain repairs and maintenance costs but getting a used car can often mean lower monthly payments and lower insurance. An extra plus? You can ensure reliability in this vehicle (if you do your shopping right) and not have to just hope the warranty will be there to save you in the event of a breakdown.
FINAL THOUGHTS
Overall, do your math homework before you make this decision so that you understand the full impact of the purchase (or lease). Like we said, it’s all up to you and what you need, but hopefully this made the decision a little easier to manage. Whichever you choose, just be sure that your monthly payment doesn’t exceed 10% of your income so that you’re not paying more than you can handle.
