Leasing Versus Buying a Car
A lot has been written about the pros and cons of leasing a car versus buying one, but I would like to revisit that topic today. This is one of the most important decisions you can make when shopping for your first car, and one that requires a lot of careful thought. So let’s talk about some of the benefits of leasing, as well as some of the disadvantages involved with the process.
When you lease a car, you are basically making monthly payments that account for the depreciation of the vehicle, and you also pay interest on it as well. It’s almost like paying money in order to borrow a car temporarily — that is, for a few years — from the dealer. This is obviously very different from buying a car, because you’ll never truly own a leased vehicle.
The Benefits of Leasing Versus Buying
I’ve been leasing cars for the last 10 years or so, and it works well for me. But it doesn’t work well for everyone. Understanding the benefits of leasing a car is the key to deciding whether or not it’s the right option for you. One of the biggest benefits, in my opinion, is the fact that you can always have a relatively new model and pay less for it on a monthly basis than you would if you bought the car.
You also have the peace of mind that comes from being under a permanent warranty. For example, if you leased a car and turned it in for a new one every three years, the car would always be covered by the manufacturer’s warranty. So you never have to worry about any major repair costs.
The trade-in process is another benefit of leasing a car versus buying one. If you actually purchase the vehicle, you have to trade it in or sell it at some point, and that can involve a lot of haggling over price, terms, etc. But at the end of the lease, you can literally drop the car off, sign a quick document and walk away. Or you could trade it in for another newer vehicle, and the process is just as easy. For obvious reasons, the dealer wants to make it really easy for you to continue leasing new vehicles from them. So they make the turn-in process simple for you.
The Disadvantages of Leasing
Now let’s talk about the opposite side of the coin. There are clearly some disadvantages to leasing a vehicle versus buying one, and here’s a short list of those.
1. Mileage Restrictions
Most car lease programs include mileage restrictions. This means you can only drive a certain number of miles per year, and therefore on a monthly basis as well. Typical mileage limits range from 10,000 – 15,000 miles per year. So it’s a wise idea to calculate the average number of miles you drive in a month, and then multiply that mileage times 12 to find out how much you drive in a year. This will help you decide whether or not leasing a car is the right option for you.
2. Damage Fees
Another disadvantage of leasing versus buying a car is the turn-in inspection you’ll have to go through (when you turn the vehicle back into the dealership). If you have excessive wear and tear on the car, you might have to pay additional fees.
When I traded my vehicle back into the dealership at the end of the lease term, they sent a guy out to my house to do a quick inspection. It was pretty straightforward, and he didn’t find anything that warranted extra fees. So in my experience, they are looking for serious wear and tear, or actual damages, to the vehicle during the suspension. But I’m sure it varies from one car dealership to the next, so you need to talk to them about this in advance and find out what their definition of “normal wear and tear” actually is.
3. No Equity
Another disadvantage to leasing a car is the fact that you do not acquire any equity in the vehicle. Equity, of course, is another way to say ownership. At the end of the lease term, you do not have any ownership in the car that can be applied to the next car. On the contrary, when you buy a car, you actually gain equity in it the longer you own it. So when you turn in a car that you’ve been financing as a straight purchase, you have equity or ownership that can be applied toward the price of the new car.
Should You Lease or Buy a Car
This entire lesson can be summed up in the following way. If you are the kind of person who likes to drive a new vehicle at all times, and you plan to get a new car every few years, then leasing might be a better option than buying. It doesn’t make sense to buy a car and suffer the depreciation that occurs when you drive it off the lot, only to turn the vehicle in two or three years later. So in this kind of scenario it may be better to lease than to buy a car.
Mileage is another big consideration, as we mentioned earlier. For example, if your job involves a lot of travel by car, then leasing may not work for you. Before you lease a vehicle you need to find out what the dealership’s mileage restrictions are, and compare those limits to how much you actually drive on a monthly and yearly basis. This alone might rule out the viability of a lease.
I hope this article helps you understand the various pros and cons of car leasing versus buying. It really boils down to a matter of preference and habits. If you prefer to drive a new vehicle, and you’re in the habit of changing vehicles often, than car leasing might be better than buying.