When it comes to buying or leasing a car, there are advantages and disadvantages to each choice, but which option will save you the most money? Let us compare the two and explore the options.
When you lease a car, you will usually have a lower down payment that when you purchase your car. If you don’t have a lot of cash flow, this can help you get into a car. Dealers will often limit the amount of a down payment that you need, in order to get the car off of the lot. That said, the lower your down payment, the higher you will pay in your monthly fee.
Depending on the car, you will probably have lower monthly payments in a lease, compared to a car you finance. This is because you are only paying to cover the depreciation of the car, plus a little extra, rather than the value of the car.
As long as you maintain the leased car, you will have an easy time getting a new one when the period of your lease is up. This means that you can experience driving a new car every two to four years, something that is important to some drivers. You won’t have the hassle of selling an old car to get a new one. However, if you see yourself keeping the same car for at least seven years, then you will save a lot more money, even with financing, when you purchase your car outright.
If you use your car for business purposes, you may be able to deduct a higher amount on a lease versus a car you own.
One disadvantage of a lease is that you don’t actually own anything, so you never build up value or have an asset. When you lease is up, you won’t have a car to show for all of those payments. You will always have a car payment, for as long as you have a car. Because you don’t own the car, you will never pay it off and can never drive it free and clear.
With leasing, there is also a lack of flexibility. If you have a significant life change and want to get out of your lease, you may pay up to six months of payments as a penalty. You may also incur additional charges on your car, if you drive over a certain limit of miles. If you drive under the number of miles, you won’t get anything back, so you will be paying for depreciation that you didn’t actually cause.
When you turn in your car at the end of the lease, you may also be hit with additional charges for extra wear and tear, at the discretion of the leasing company.
Another financial danger of having a lease is if the car gets totaled or stolen. Your insurance may only cover the market value of the car, which may be significantly less than you would owe the leasing company. This means that you would have to come up with the extra cash to fill in the gap, unless you purchased additional gap insurance up front.
When purchasing a car, you may have the option of paying for it upfront in cash, especially if you choose a used car. There are advantages to this that aren’t available in a lease, such as being able to negotiate a lower price and skipping the fees and interest payments.
So the bottom line is that in the long term you will probably wind up paying more for a car you lease compared to one you buy, especially if you don’t have to finance your purchase.