According to Cars.com, about 20% of consumers in 2012 lease their vehicle rather than financing their car or purchasing it outright. If you’re one of the many drivers who have never leased a car, you may wonder what the benefits are. On the other hand, most people know at least one driver who swears by leasing – but why don’t they want to buy? Here we present both sides of the argument, including the pros and cons of each, to help you decide whether buying or leasing is the smart financial choice for you.
Leasing Pros And Cons
Leasing a car basically means that you get a new car every few years, making monthly payments on the car as you go. Besides the obvious thrill of driving a new vehicle, there are other perks to leasing, such as:
- Having the latest technology in your car
- Fewer repair bills
- Lower monthly payments compared to buying
- Smaller initial upfront payment
- Avoiding upside-down car loans
- Writing off lease payments when you use your car for your job (if eligible)
- Lease obligations don’t show up on a credit report
- Incentives for leasing given by the automaker
Surprisingly, quite a few of the benefits of leasing have to do with finances. However, there are a few downsides to leasing that shouldn’t be overlooked, such as:
- Never-ending payments – leasing means you’ll never reach a point where you don’t have to make a car payment
- Lack of equity – your payments don’t go towards owning anything
- Penalties for breaking the lease
- Charges for going over the allotted mileage per year
- Charges for damages beyond normal wear and tear
- Insurance may not cover what you still owe on the lease if it gets stolen or totaled
These are certainly some serious disadvantages to leasing. With insurance, you can get gap coverage to help protect for losses from a theft or an accident, but the other drawbacks here are pretty much locked in. Be sure to consider these things carefully before leasing a vehicle.
Buying Pros And Cons
While leasing comes with its benefits, so does buying. Those who buy their car rather than lease get the following perks:
- Once the payments are complete, you only have to cover maintenance
- Building equity
- Making money when you get rid of your car by selling
- More flexibility – you can sell the car at any time and don’t have to worry as much about wear and tear or mileage
- Lower insurance fees for owning a car for a long time
Buying a car can certainly be a smart financial decision, but there are also some drawbacks to buying, such as:
- Making a larger payment upfront
- Taking a long time to pay off the car
- The risk of getting into an upside-down auto loan
- Not having the latest features or technology in your car
- The debt shows up on your credit report
- Increasing repair bills as the car ages
Making A Decision
Clearly, both buying and leasing have their ups and downs. So how do you decide which option is right for you? The key is to thinking about your long-term financial success. For most people, buying a car is clearly preferable. That’s because you build equity and you can eventually get rid of your car payment entirely. The main attraction here is to pay off the car and not worry about monthly payments, so if you make a smart choice about financing and choose a car within your budget, then buying is probably right for you.
However, there are definitely exceptions where leasing is preferable. The most important thing to consider is whether you can write off the lease payments due to your job. Other exceptions may include someone who can’t afford the larger upfront payments or larger monthly payments of a new car but still needs to get a car. If either of these scenarios applies to you, then you may want to consider leasing. However, keep in mind that you still need to meet certain other requirements in order for leasing to be a good idea (you don’t drive more miles than the average driver, you can stick to the lease terms, etc.).
For most people, buying a car is the smarter financial choice when compared to leasing. However, leasing can be done responsibly and doesn’t have to be damaging to your finances. If you do decide to lease, make sure you’re still staying within your budget and that you can stick to the lease terms.