Car Talk: Buying vs Leasing

It’s a pretty common issue, you’re in the market for a car and wondering whether you should buy or lease. While there is no simple answer, there are pros and cons to both, but the one thing to know is that it really depends on your own personal situation. Factors like buying new or used, and whether you want the option to buy the car at the end of the lease, how much you drive, and what your car tastes are, can all have a huge impact on the decision.

The Basics
Leasing Pros: Short term commitment, newer cars, low/no down payment, limited responsibilities, low/no maintenance costs
Leasing Cons: Mileage limits, short terms

Buying Pros: Ownership, long-term steadiness, cost effectiveness when buying used
Buying Cons: Long-term commitment, loan/credit issues, long-term maintenance, depreciation (how much and when the car loses value)

Pro Tips: Know your budget (target and highest acceptable payments), know your credit score, always negotiate on the price of the car and not on a monthly payment, especially with a lease.

Sites for research: Truecar, Car Gurus, Edmund's, Reddit's r/askcarsales and r/personalfinance

Now that we’ve got the basics down, here are four things to consider when determining your ideal situation.

How Much You Want to Pay Upfront, Monthly and For Repairs
The two main differences between buying and leasing are the down payments and the monthly payments, so calculating and comparing what your costs will be in both situations is necessary. Use this tool to start your research. Buying a car requires a higher down payment than leasing. In most cases, accepting a slightly higher payment and negotiating no downpayment (save for a few drive off costs) is ideal as you’ll only be throwing money away. If you’re buying, your monthly payments are always going to be higher because you’re you’re paying for the full value, while the lease payments are for the depreciation during your lease period; that is, the difference between the price and what it will be when you return it. Remember though, if you’re in it for the long haul at some point you’ll likely outright own the car you bought, once the loan is paid off, so your monthly payments will stop. If you never buy, you’ll theoretically be leasing over and over forever, which means making payments forever.

Paying to fix things on a car is an inescapable expense, and repairs costs will always hurt your pockets. One of the benefits that leasing has over buying is that some of these costs may be covered under warranties or maintenance packages for the entire period of your lease, with the exception of excessive wear-and-tear, which we’ll talk about later. A purchased car means accepting that you’ll have to take care of repairs yourself once the warranty is up.

How Long You Want To Keep The Car
If you’re buying, you better be in it for the long haul, at least 5 years depending on the structure of your loan and car-specific depreciation factors. But if you like the idea of a fixed situation for a longer period of time and don’t much care for the latest and greatest, buying might be for you. Leasing, on the other hand, is for the commitment-phobe who likes the low-maintence idea of having the freedom to change their ride every few years. The integration of new tech in cars is happening so fast that getting a new one without waiting to sell or pay off the one you own makes leasing really appealing, especially if you can get a model you maybe wouldn’t commit to long-term. Keep in mind, though, that if you opt to lease, you should keep the car until it expires because you’ll still be responsible for the remaining payments.

How Much You Drive
Mileage restrictions are probably the biggest downside to leasing. Your terms and payments will factor in a set number of miles allowed over the life of your lease, and 10K, 12k, and 15k miles per year are standard leases these days (higher-mileage options are available though). If you do go over you’ll end up paying in the range of $0.15-$0.30 per extra mile, depending on what’s in your agreement. The reason for the limit is because the dealer will sell the vehicle as “pre-owned” after you return it, and the more miles on it, the lower the residual value and the less the dealer can charge for it. Obviously, they want to keep the mileage as low as possible. People who own cars may try to keep their annual mileage in the range of what’s normal, if they hope to sell it on their own or trade it in down the road, too, but it’s voluntary. If you drive a lot, you may be on the hook for hundred or even thousands of dollars in penalty fees in your lease for going over your limits. But if you’re not a heavy commuter or road-trip type mileage limits are largely a non-issue.

How Much You Can Keep It From Getting Damaged
No one wants their car dinged and dented, but people who lease risk more than just aesthetics. Dealerships will charge for excessive wear-and-tear when you turn the car in and for neglecting it by not keeping up with regular maintenance requirements, like oil changes, brakes and tires. Note: what’s normal wear-and-tear to you is likely not the same for the dealer, so it’s important to have clarity on that before you sign a lease. Smokers, pet owners, and people who regularly eat in their cars might have to cough up some costs. Additionally, most leased cars can’t be customized or modified so those dope 20 inch dubs you’ve been eyeing can have an effect on your lease.

The Bottom Line
Again, the biggest thing is that all these factors are highly dependent on your individual situations and tastes. But know this, if you buy, you are investing in a depreciating asset that’s only going to lose value over time. If you are in it for the long term, for our money (both literal and figurative), buying something that is 1-3 years old with low mileage (i.e. a lease return), as opposed to something brand new, is the best move as the car will lose the majority of its value within the first few years. As long as you keep mileage limits in check leasing offers greater affordability, flexibility and far less commitment. The important thing to remember is though, no matter which route you choose, you should go to the dealership armed with enough information about what you want to do to walk away with terms you can live with after you sign on the dotted line.