Should You Lease or Buy a Car?
Does it make better sense to buy or lease a new vehicle? That depends upon a number of factors, such as the residual value of the car you intend to purchase, the amount of money you pay upfront as a capitalized cost reduction and the cost of financing. Nevertheless, it’s recommended to explore both buying and leasing options to identify which choice is the best for your budget and preference.
The Advantages of Leasing a Car
A lease will usually be a more attractive option when compared to a vehicle purchase when measured over a particular term. Keep in mind that with a lease, you will have to return the vehicle at the end of the lease term. However, if you purchase the vehicle, you will own it and will be able to continue driving it after the lease term would have expired.
Lower up-front costs
Probably the single greatest benefit of leasing a car is the initial, lower cost. Leases often require little or no down payment, and there are no upfront sales tax charges, therefore all you need to worry about is the monthly payments.
Repairs are covered
Worried about repairs and maintenance? You don’t have to fret about either when leasing a car. The manufacturer’s bumper-to-bumper warranty will be in effect during the entire lease, so major repair costs are always covered. For certain vehicles, manufacturers also offer free maintenance (including oil changes and tire rotations!) for the duration of the lease.
The pleasure of owning a new car every few years
Better technology in cars typically means improved safety features and increased comfort. As we get older, our creature comforts are something worth paying for. Leasing a vehicle—depending upon the term—can mean you’ll be hitting the streets in a new set of wheels every couple of years.
Only pay for the use (depreciation) of the car for that period instead of absorbing the full depreciation cost of the vehicle.
When leasing, you are in effect renting the car for a fixed amount of time. Therefore, leasing a car will never put you in a position of having a depreciating asset. Remember, a car loses significant value the minute you drive it off the lot.
The Advantages of Buying a New Car
New-car shopping is easier
Buying a new car is much less stressful than buying a used vehicle. It is assumed that a new car is free of any problems and truly is “brand new” to you. Buying a used vehicle can be one of the most stressful times in life…not knowing if the seller is honest and reputable, if the car has “hidden” problems that you will discover later, or if it might die altogether on you in a month and you have no repercussions to go back on the seller.
More financing options
Dealerships offer cash rebates to lure buyers and new car loans have better interest rates than do used car loans. This means you’ll likely pay thousands of dollars less when it’s all said and done.
Similar to leasing, you’d be getting the newest features for comfort, performance and safety.
Peace of mind
A new car will likely be more reliable than a used one. If your new car breaks down, you likely can have it fixed free of charge under the included factory warranty.
The Advantages of Buying Used
With that said, however, it’s hard to give a definitive answer that covers every person in every situation. If your only concern is making the most sensible financial decision for purchasing a car, buy a used vehicle, pay it off and hopefully drive it until the wheels fall off.
Lower car insurance rates
When a vehicle is worth less, it costs less to insure it when buying collision and comprehensive coverage. You might even consider dropping collision and comprehensive coverage and only carrying liability insurance.
Registry renewals are cheaper
The cost of registering a used car goes down every year.
Move up to a luxury car
Because used cars typically cost less, your budget may be able to buy a more luxurious car for the same amount of money you’d spend on a less glamorous new car.
Door dings, scratches, and dents are a killer to a new car’s owner. You’re less likely to stress over those things on a used vehicle.
A Car Loan Just for You
If you’re set on shopping for a new or a used vehicle, lock down some of the best-in-market rates. With fast approvals and flexible terms, you can apply to be pre-approved BEFORE looking for a car. This way, you’ll already have your financing arranged when you find that perfect vehicle.
Whether you’re looking to lease or buy a car, it very much depends on your personal goals and personal needs. Your decision can simply be summed up as follows:
- Lease if you want the lowest out-of-pocket costs (both in down payment and monthly payments) with the latest and greatest tech in a car.
- Buy new if you can afford it and want to relieve the hassle and stress of buying from someone with unknown driving history and care for the car.
- Buy used if you want the overall cheapest option of all. In other words, if you only care about getting from point A to point B, this is your best bet.
If you still need some self-assurance and want to crunch the numbers for yourself, try using our handy auto calculator to see what option works best for you. Good luck and know that we are always available here at DECU to help you where we can.