Is it Better to Lease or Buy a Car?
Car shopping is complicated, and it’s even more complicated when they throw in the question of whether you want to lease or buy. There are several things you need to think about before you answer the salesman. There are pros and cons to both options. Leasing gives you the best car on the lot for less money each month, but buying is more cost effective over a longer period of time. Think about how your use your vehicle and see what makes the most sense for you.
- How often do you drive? Leases come with a mileage contract that are typically within 9,000 to 15,000 miles per year. If you are expecting to drive more than 12,000 a year, than you might want to consider purchasing a car. There are hefty fines for going over your mileage contract. Know exactly how long your morning commute is, and how far away any other frequently visited locations are. Crunch some numbers and make sure that you have plenty of wiggle room each month for extra mileage to grocery stores, trips, and expected emergency trips.
- What is your monthly income? Leases are typically less expensive month to month in the short term. If you need to have a tight budget, then leasing is a better option. Over the long term, buying is less expensive. Once you purchase it, the only cost of the car will be gas and maintenance.
- Credit Score: To lease a car, you’ll need to have a high credit score. Even credit scores that are slightly bruised aren’t going to get you the car. It’s easier to get a loan from a bank to purchase the car, than to lease. If you do end up getting the car loan, it will improve your credit score by having you pay it off on time each month.
- Equity: If you decide to lease, then you do not own that property. It’s not a part of your equity even though you are putting money into it. When you return the car, you will get nothing in return to put down on a downpayment.
- How do you treat your cars? There is typically a wear and tear contract in your lease that requires you to return the car in basically the same condition that you took it in. If you have kids riding around with you, odds are that things are going to be split and damaged, which will negate any contract. You’re also limited in what you can do with the vehicle. You can’t put tint on the windows, put stickers on the back, or make any body changes that you would like. You’re renting the car, and you can’t customize it to your preference. You have to keep it in pristine condition to return it without incurring significant fees. If you know that you aren’t going to be able to keep the car looking brand new, then it’s best to buy a car.
- Do you want to keep the car for a long time? A plus of leasing is that you constantly have the latest in car technology. You are trading in a new car for an even newer car each year. You’ll always have the best that car companies can offer while you are on the road. If you are like many others, you grow attached to your car, and don’t like to constantly rotate your vehicles. Some enjoy keeping their car for as long as possible. If that’s you, then buying is the better option.
If you’re looking to put money back into your own pocket, buying the car to own is a better option. Leasing is like renting a home. You have a nice place to live, but after the lease is up, you have to move out. When you own the car, you have more freedom to do whatever you like with it, but it does cost you more money up front. Talk to a financial advisor to see what the best route is for you.