When it’s time to upgrade your vehicle, you might start to wonder whether you should lease or buy. There isn’t a right or wrong answer, since both options come with pros and cons, but researching the advantages of each can help you decide whether buying or leasing is right for you.
Benefits of Buying
Buying a car is the only option if you plan on keeping the vehicle for a long time. Because you end up owning the car once you pay off the loan, you can look forward to a payment-free future – at least until you buy your next vehicle.
Anyone planning ahead and budgeting for the next several years will probably like the idea of not having a car payment further down the road, which is why purchasing a vehicle tends to be the best choice for most drivers.
Drawbacks of Buying
It’s difficult to predict what your car’s resale value will be years from now. What if you end up having to trade it in or sell it? You’ll be hit with an unknown amount of depreciation.
Most lenders also require that you place a down payment when buying a car. This generally means having to save 10 to 20 percent, which often translates to a few thousand bucks. Most people simply don’t have that kind of money in the bank.
It can also be difficult to qualify for a loan that offers good rates, which can get your monthly payments down to an affordable amount. If your loan doesn’t have a decent interest rate, you could be faced with having to refinance down the road.
Benefits of Leasing
One of the main benefits of leasing a car is that you can get more car for less money. Leasing is similar to financing in many ways, but rather than being based on the car’s full retail value, a leasing contract is only based on a percentage of the car’s price. More specifically, you’d only be making payments on the amount the car is expected to depreciate during the time you drive it.
In many cases, leasing doesn’t require a down payment like auto financing does, so you can negotiate the lease and drive off the lot without spending any money. Most leases also last about three years, so you never have to worry about the warranty running out.
Drawbacks of Leasing
Failure to abide by maintenance agreements, such as oil changes and tire rotations, can result in fees at the end of the lease. Your lease limits the number of miles you can drive, so you’ll need to estimate how many miles you drive annually before signing the agreement. You’ll also need good credit to qualify.
At the end of the day, you’re really just renting your vehicle with a lease, which isn’t necessarily a drawback in and of itself, until you consider that you’re paying interest on that rental without building equity.
There’s no easy answer when it comes to buying versus leasing, so study your options, go over your budget, and review your credit history to see what your options are.