Millions of Americans upgrade their primary vehicle every year—and when they do, they must make the decision between leasing a vehicle or buying it outright.
Proponents of both leasing and buying may fiercely debate the merits of one option over the alternative, but the reality is that both leasing and owning a vehicle may offer advantages to consumers, depending on their finances, their personal preferences, and the reasons they’re seeking a vehicle in the first place.
Are you in the market for a new vehicle but unsure of how you’d like to finance that vehicle? Here’s what you need to consider as you determine whether you prefer to lease or buy a car.
Buying Will Save You More Over Time
The biggest argument in favor of car ownership is that, when you buy a car, you get more value out of that acquisition over time. Although the vehicle will depreciate in value over time, your loan payments during that time build equity in the vehicle.
Plus, once your loan is paid off, you won’t need to make any more payments—you fully own the vehicle. This is much different from taking on a lease, which means you’ll always be making a monthly payment for that vehicle. If you change vehicles every few years anyway, this difference might not matter. But if you have a history of holding vehicles for a long time, a fully paid-off vehicle could be a boon for your finances.
Leases Provide You with a Fixed Vehicle Cost
Both auto loans and leased vehicles offer a fixed monthly payment. But the costs of leasing are even more reliable because leased vehicles are typically low on miles and therefore less likely to need significant maintenance or repairs.
If you’re buying a new vehicle, this difference might not be significant early on—especially because most major repairs will be under warranty. But lease agreements may offer additional coverage for certain types of services, which could result in slightly lower costs.
Owned Vehicles Don’t Come with Mileage Restrictions
When you lease a vehicle, you may be faced with certain restrictions, including the number of miles you’re allowed to drive over the course of that lease. If you drive the vehicle above this limit, you may be subject to additional fees.
An owned vehicle, in contrast, is yours to do with as you please. If you plan on logging a lot of miles, leasing may not be as advantageous given the premium you’ll have to pay for this additional wear and tear.
Leased Vehicles Offer the Comforts of the Latest Features and Technologies
As onboard vehicle technology has evolved rapidly over the past decade, leased vehicles have been attractive for their ability to give drivers access to the latest and greatest features.
This is a risk you take on when you buy a car outright, because the features—ranging from material comforts to safety ratings—may age quickly. It’s impossible to tell the future, but based on the way vehicles have modernized in recent years, you’ll need to be prepared for your owned vehicle to feel very outdated a few years down the road.
Owned Vehicle Equity Can Help Fund Your Next Vehicle Purchase
Thanks to the equity built up in an owned vehicle, consumers looking to upgrade will have a head start on affording a downpayment for their next vehicle. When it comes time to upgrade, you can trade in your vehicle for a lump-sum credit toward your next purchase.
When you lease, that equity isn’t available—which means you’ll be forced to pay the full price if you ever decide to switch from leasing to owning.
Leases Will Spare You the Hassle of ‘Fair Wear and Tear’
Every vehicle incurs some level of damage through regular use. Small scratches and minor dents, wear on vehicle interiors, and early signs of corrosion and rust are inevitable on any vehicle.
When you own your vehicle, those small forms of damage will likely increase over time, and may lead to additional repairs over the lifespan of the vehicle. But most lease agreements allow for “fair wear and tear,” which means these incidental types of damage won’t incur a cost at the end of your lease term. While regular wear and tear will eventually cost vehicle owners one way or another, leasees won’t have to stress about the small stuff.
Given the benefits and potential drawbacks that can come with either leasing or owning a vehicle, it’s in your best interest to weigh these pros and cons based on your unique circumstances as well as the benefits and conveniences that matter most to you. Even if you have a history of only leasing or buying, it’s worth taking some time to make sure this approach still makes sense given your current situation.
Planning to lease or buy a car, but still working to pay down your debt? Download The Definitive Guide to Paying Off Credit Card Debt today.