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Purchasing a vehicle can be a very stressful process due to the amount of money at stake and the importance of the decisions you have to make.
If you’re in the market for a new car, you have a choice between buying or leasing a vehicle. Both get you behind the wheel of a brand-new automobile, but each comes with distinct benefits and drawbacks.
In this blog, we examine the main differences between leasing and buying a car. We’ll consider some of the major factors you should be looking at as you weigh your options and then consider which one is likely to best meet your specific needs. Read on to learn more.
What’s the difference between leasing and buying a car? Put simply, leasing a car is a lot like choosing to rent an apartment. You pay a fixed amount each month and when it’s time to move on, you simply “move out” by returning the vehicle. It’s a convenient, no-strings-attached way to have a vehicle without any long-term commitment.
Owning a vehicle, on the other hand, is more like buying a house with a mortgage. You get to use your vehicle as you wish and sell when you are ready, provided you continue to make scheduled payments on your auto loan on time. Unlike leasing, however, once all the payments are made, the car is entirely yours to use for as long as you wish or sell in the future.
That said, there are also important differences between buying or renting a home and buying or leasing a car. Let’s ask some key questions to help you determine which option is better for you.
Knowing how much you want to spend on a car might seem like a straightforward question, but there are actually several important questions rolled into the big one, “How much do you want to spend?” such as:
Leasing is a tempting offer for many people because it is usually cheaper on all four counts. There is no down payment required, you simply sign up to pay a set amount each month for a period of time, after which you return the car.
Monthly lease payments are typically significantly lower than comparable monthly auto loan payments and the total paid over a standard 36-month lease is usually well below the premium plus interest charged in the first three months of any car loan term.
What about maintenance costs? Because dealers know they will be getting a vehicle back, they often include regular maintenance, parts, and upkeep in the price, often to the value of a thousand dollars a year or more. If you buy a car, a similar scheduled maintenance package costs extra or comes out of your pocket over time.
So, what’s the catch? It’s simply this: the money you put towards paying a car loan on a vehicle you purchase goes towards paying interest, but it also goes towards eventually owning the vehicle. The money you pay on a car lease simply covers the reduction in the value, or depreciation, of the vehicle during the lease.
When you buy a vehicle, your cost of ownership drops dramatically over time and you end up owning a valuable asset. With leasing, your cost of ownership stays the same, making it more expensive over the long run, and you never get to own the car you’ve been driving.
As we’ve seen, over a typical three-year lease term, leasing is often a cheaper option than buying. That makes it a good option if you enjoy driving the latest model car or you simply want a reliable, no-hassle car for a set time period.
At the end of the lease, you return the car and can opt for a new lease on a brand-new vehicle. This way, you face none of the hassle and uncertainty that comes with driving an increasingly older vehicle.
On the other hand, if you know that you will need a vehicle for the long term, investing in a car of your own by buying your vehicle might make more economic sense. You’ll be responsible for caring for your vehicle while making payments that go towards your ownership of it.
Another catch is that leasing agreements typically come with mileage limits. This means that you can only drive the number of miles listed in your contract (typically up to 15,000 miles a year) before you have to pay overage fees. If you only drive ten minutes to work and back, this can be a great option.
On the other hand, if you are someone who loves road trips, drives as part of your job, or lives far from your office, you might find you have to pay a penalty for exceeding mileage restrictions when you return your car or additional fees for excessive wear and tear on the vehicle.
Therefore if you want to lease, remember to look carefully at your contract to understand how mileage limits and excessive wear charges might affect you. If you expect to rack up miles rapidly with your new car, then buying will give you more flexibility and may cost less in the end.
Do you enjoy driving late-model or high-performance cars? Is it important to you to have an impressive vehicle sitting in the driveway? One of the major benefits of leasing is that you’re able to drive a newer model vehicle that you can exchange before it begins to look outdated.
And, because your monthly costs are lower, leasing might allow you to drive a more expensive model of car that you could afford to buy.
Alternatively, if you have your heart set on a specific make and model car that you plan to drive for a long time, you’re better off saving for the exact car you want, and then spending the money and time to maintain it properly.
For many car owners, customizing a vehicle with colorful trim, an enhanced stereo system, or a custom paint job is part of the appeal. For others, it’s about installing specialized suspension and lights or purchasing a flashy grill.
If you plan to add any upgrades yourself, then it’s better to plan to buy the vehicle. Lease contracts typically prohibit any modifications to ensure the dealer can sell it easily on the used market once you return it. Any unauthorized changes to the vehicle could end up costing you plenty when you turn your car in.
Many car lease contracts give you the option to buy your vehicle at the end of the contract rather than simply returning it or leasing a newer vehicle. Some contracts also include an “early buyout” option allowing you to purchase your vehicle earlier in the contract.
Typically, your end-of-lease buyout price is calculated when you sign your lease, based on the residual value of your car at the end of the lease period. Because your lease company is essentially offering to sell you your vehicle, this can work in your favor if you take very good care of your car or if the market price for used vehicles increases while you are leasing.
In cases like this, you might be able to buy your leased vehicle at a discount compared to market prices. You’ll also have a very good idea of how the vehicle performs in all conditions and how well it suits your lifestyle.
Buying out your vehicle earlier in the lease is more complex and involves calculating how much your car has depreciated—or lost value since the start of the lease—based on the new model price and any buyout price included in your contract. Some leases might also include early buyout penalties to discourage you from doing this.
This means buying out a vehicle is usually a more expensive option, but it can be a good option if you really like your leased model and are worried about getting a similar replacement. It can also be a less expensive route out of your lease if you have racked up extensive mileage or added expensive customizations to it.
Answering these questions should give you a good idea of whether leasing or buying a vehicle is the best option for you. If it comes down to a straight monetary comparison, then it’s important to understand exactly how much your auto loan is going to cost you.
It’s also worth taking the time to ensure you get the most affordable auto financing option. Start by taking a look at Baton Rouge Telco’s auto loan calculator. You’ll get a good idea of how much your loan is going to cost based on different down payments, annual percentage rates (APRs), and loan length options.
Also, be sure to take a look at the affordable auto financing options Baton Rouge Telco offers our members on both new and used autos. You’ll find:
In addition, Baton Rouge members qualify for an APR loyalty discount of up to 0.5% on all auto loans. We also offer generous refinancing options and affordable loans for recreational vehicles.
Talk to us about your auto financing needs today. We’ll find a fast, convenient way to get you moving for less. Click below to learn more.
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