Cars are a big part of our culture. Many of us work in places where cars are required to get around. At some point, you’ll need to purchase a car that costs more money than you have on hand. You’ll ask yourself “Should I buy or lease that car?”

People have been purchasing vehicles forever, but leasing (the practice of only financing the depreciation of a vehicle, not its entire cost) was once only accessible to wealthy people or companies with generous budgets. That isn’t the case anymore. As vehicle costs continue to rise, leasing becomes an attractive solution for every segment of the car industry.

Some people will tell you “It’s smart to buy the car,” or “Save yourself the hassle and lease.” Truthfully, there’s no simple answer. Which option is better depends on your situation, your finances, and your needs? We’ve laid out the advantages and disadvantages of both options.

Advantages to leasing a car

• Your lease payment is usually less than a finance payment would be.
• You can have a new car every year if you wanted (with all of the new gadgets).
• You can drive a better car than you can afford.
• A lease can be written off business taxes, making it a good company vehicle.
• Perfect choice if you’ll only be in the area for a year or two.
• The leasing dealership issues a warranty that covers much of the repairs.
• You aren’t making a purchase, so sales tax is less.
• There is no trade-in vehicle to deal with.
• If the car is worth less than the lease predicted at the end, it’s not your problem.

Disadvantages to leasing a car

• At the end of the lease, you don’t own the car. You have to return it (although there is an option to buy, but it’s often not in your favor financially.)
• Terminating a lease early can lead to expensive fees.
• Putting too much wear or mileage on the car can lead to expensive fees.
• If you plan to keep the car for years, leasing is more expensive than buying.
• Lease contracts are made to be confusing so you pay more in fees.
• Your mileage is often limited to 12,000/year, which is easy to overcome.
• You can buy extra mileage, but it’s expensive.
• Typically the lease requires you to have excellent credit.
• Failing to perform basic maintenance can result in extra fees.

Advantages of purchasing a car

• You can modify or augment the car in any way you wish at any time.
• It’s cheaper over the long run if you plan to drive the car for a long time.
• There’s no limit to how many miles or much wear you can put on the car (which is important for commuters who travel long distances).
• You can tailor the loan term (length) and payment amount to your budget.
• You can sell the car whenever you want for as much as you like.
• Once the car is paid off, a big piece of your budget opens up.

Disadvantages of purchasing a car

• Many dealers require you to pay a down payment before you can finance a vehicle. This is smart anyway, otherwise, you’ll be upside down on the loan.
• Long loans can mean paying a lot of interest by the end of the loan.
• The monthly payment is higher than a lease payment.
• You are responsible for repair costs (unless there’s a warranty, but that doesn’t last forever).
• At some point, you’ll have to sell it, trade it in, or junk it.
• A car is a depreciating asset, so you’ll never sell it for what you paid.
• Fluctuations in the car’s market value can affect your selling price (which you can’t predict).
• If you need to sell your car but owe more than it’s worth, you would have to pay just to get rid of the loan.

Summary

When you’re trying to decide whether to buy or lease a car, look at it like this: A leased car is convenient, easy, and you get to drive something new all the time. A purchased car is far cheaper, and you have the freedom to use it however you please.

Before you make any decision, it’s important to understand the real financial implications. Use this calculator to understand your potential car buying options.

Jennifer Dwyer
Personal Lines Representative
jdwyer@srfm.com