Which is better: Leasing or buying a car?
The answer to this question is, effectively, both… depending on your personal situation and needs. So there isn’t really a definitive answer to the question of “is leasing or buying a car better”. The net/net though of leasing is summarized below:
- In the shorter term (1 to 24 months), leasing is probably better than purchasing. This assumes you are a person who likes a new car every two to three years. In the short-term, the monthly cost of leasing will be substantially less than the cost of purchasing the same car. This difference can be as much as 25 to 50 percent or more depending on a variety of factors. So if you’re the type of person who likes to get a new car regularly, then a lease may make more sense for you than a purchase.
- Over the medium-term (24 to 39 months), leasing and purchasing start getting more even in terms of which is better from a financial standpoint assuming the buyer sells or trades his or her vehicle at the loan end and the lessee returns his or her vehicle at the end of the lease.
- In the long run, (over 39 months or so), the cost of leasing will almost always be more than the cost of buying. This assumes that the purchaser keeps his or her vehicle after the loan ends. So if you are the type of person who likes to buy a car and keep it for a long time, you probably should purchase and not lease.
So the real question is not “Which is better: Leasing or buying a car?” Rather, “Which is better for YOU?” The answer to that depends on what type of vehicle buyer and user you are.
Through the years, we have been taught that leasing is not a better overall deal than purchasing. In fact, much of the information in this section would lead you to believe that, at least over the long term, leasing is not the way to go.
But, that may not necessarily be true when you take into account the entire cost of ownership of a vehicle over a long period (which includes paying for maintenance and repairs) the cost of a lease versus a purchase can get a lot closer.
In any case, it’s important to keep in mind the key things that most experts would tell you need to be considered when you’re looking at a lease:
- Advertised lease payments versus the real payment. In almost all cases, the advertised price on a lease does not include sales taxes and fees. So that $299 advertised lease deal could end up being $335 to $350 after the deal is done.
- Long lease deals typically don’t make sense. If you are considering a lease longer than about 36 months or so (39 is probably the longest you should ever consider), you probably want to reconsider. After three years, there are additional costs that will be added into the deal such as an extended warranty (or you coming out of pocket to pay for repairs and problems).
- Low monthly payments may cost you. Keep in mind that a really low monthly payment may also mean that you have to put down a lot of money just to get the lease deal done. In any case, you should plan for putting down between $1,000 and $1,500 to make the lease deal work.
- Make sure the lease has gap insurance. Most leases do, but you should check it to be sure. As was noted earlier in this guide, Gap insurance pays the difference on what the car is worth and what is owed on the lease should you seriously damage or total the car in an accident.
- Be right about your mileage estimate. Don’t ever low-ball your estimate of how much you drive when doing a lease. The mileage penalties are often very expensive and will cost you a lot. It’s best to keep a close eye on your mileage.