Should You Lease or Purchase a Car?

buying or leasing a car

Whether you just need it to get from Point A to Point B or you intend to take weekend road trips all summer, going without a car just isn’t an option in many places. Unfortunately, purchasing a vehicle can be quite expensive. For this reason, many people turn to leasing instead of purchasing a car outright. Is that really the best choice, though? Read on to learn the differences between purchasing a leasing a car before you decide which option is right for you.

What Is the Difference Between Leasing and Purchasing?

Before you can decide which option is right for you, you need to know the difference between leasing and purchasing a vehicle. When you purchase a car, you pay for the entire worth of the vehicle, despite depreciation. This means a car that costs $36,000 will cost $36,000 no matter what. However, leasing a vehicle means you only pay back the amount you depreciate. If the car that costs $36,000 loses $18,000 of its value over three years, you’ll only pay that $18,000. When you purchase a car, you’re responsible for the cost for as long as it takes to pay for it. When you lease one, you can choose to continue paying for it at the end of your contract or to return the vehicle and walk away from the rest of the cost.

How Does Ownership Work?

lease agreement

Ownership is the biggest difference between leasing and purchasing a vehicle. When you purchase a car, you own it as long as you keep up with the payments. When you complete your contract, you keep the car and can either continue to drive it or choose to sell it. When you lease a vehicle, the leasing company owns it and you are “borrowing” it through a rental program. When you complete the contract, you must either sign a new one to continue using the car or you must return it to the company. Your agreement will likely have stipulations regarding making any cosmetic or mechanic changes to the car and whether other people can drive it, as well as how many miles a year you can drive it.

How Much Do You Pay Upfront?

When you purchase a vehicle, the upfront costs usually include a down payment and fees such as taxes and registration. When you decide to lease a car, you’ll need the first month’s payment and a security deposit, plus fees for taxes, registration, and the acquisition of the vehicle. Depending on the company, the car, local laws, and even your credit, other fees may apply.

How Much Are Monthly Payments?

The difference in monthly payments is often what makes people choose to lease a vehicle rather than purchase one. Purchasing a car usually means taking out a loan, which almost always has a higher monthly payment than a lease does. This is because you’re paying a range of fees, such as interest and finance charges, in addition to the entire cost of the vehicle. Leasing payments are often lower because you only need to pay for the depreciation instead of the full cost of the vehicle. In a lot of cases, a lease payment is only about half of an ownership payment.

How Often Can You Drive the Car?

exceeding mileage

Before you determine whether leasing or buying a car is the right choice for you, consider how far you’ll be driving. When you purchase a vehicle, you can drive as often and as far as you’d like, although it is important to remember that the more depreciation you have on the car, the less its trade-in or resale value will be. Even so, purchasing is probably the best option if you drive a lot. Most leases limit you to driving between 12,000 and 15,000 miles per year unless you negotiate more mileage. If you go over the limit, you’ll have to pay extra for exceeding your mileage.

When Should You Choose to Lease?

Leasing seems like the best option in a lot of cases, but when is it truly right for you? Choose leasing if you need to save money, want to drive a nicer vehicle, don’t intend to drive often, and don’t mind a lack of customization. Leasing provides more affordable payments; allows you to drive an upgraded, higher-quality vehicle and allows you to simply drop off the car should you choose not to drive it anymore when your lease is up. Leasing also provides tax cuts if you’re a business owner and leasing for company purposes in some states.

When Should You Choose to Buy?

scheduled maintenance

Consider purchasing your vehicle if you intend to drive it for a long time. After you make all your payments, you completely own the car and can do what you want with it. This means driving it as far as you want, selling it or trading it in when you want, and customizing it to your liking. Additionally, you won’t need to show anyone your maintenance receipts, which means you won’t be penalized if you forget to get a tune-up on the recommended schedule. Finally, purchasing a vehicle doesn’t require you to buy extra auto insurance, which may end up saving your money.

Regardless of whether you decide that leasing or purchasing a car is the right choice for you, it is important to do your research. Remember, if a deal seems too good to be true, it probably is, and signing on the dotted line before you read all the fine print could leave you in a world of trouble. Look for car dealerships or leasing companies that are licensed, professional, and always willing to go the extra mile to answer your questions. It helps to verify references, check reputations through the Better Business Bureau, and read online reviews before deciding which company you want to work with. Finally, consider repairing your credit if necessary. The higher your score is, the more likely you are to receive the approval you’re looking for and to pay minimal extra fees in the process.

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