Leasing vs. buying? Urban Cars Blog wants to know… what’s better?
As retirees try to navigate through their golden years, one vital decision often looms large on their economic horizon: Leasing vs. buying. With many options and concerns, choosing the best route for obtaining a new vehicle becomes pivotal.
So the editors at Urban Cars Blog have decided to delve into the intricate exploration of leasing vs. buying, examining the pros and cons that retirees must think about if they wish to purchase a car.
Sure, it might sound amazing to have the freedom of leasing, with its lower monthly payments and the appeal of a new car every few years. But on the other hand, there’s the permanence and potential equity of purchasing a new car, offering a sense of stability.
The decision of leasing vs. buying is a nuanced dilemma shaped by individual lifestyle, preferences, and financial goals. So, on that note, join us on this journey as we provide insights to help aging adults make the best choice for their next automotive chapter.
Leasing vs. Buying: What’s the Difference?
When you choose to lease a vehicle, you pay to drive it for a specific time. The average lease goes for about 24 or 36 months. But sometimes, you can find even longer leases.
There are certain restrictions regarding how many miles you can drive and modifications you might want to make. Also, various fees will apply.
Once your lease is up, you can return the car to the dealership or buy it at a predetermined amount, as it was defined in your lease contract.
When you purchase a car, it’s immediately yours, and you take title to it. It’s your outright if you buy it with cash or after a loan is paid off if you decide to finance your purchase.
You’re in control over all aspects of the car and ultimately can keep it, trade it in, sell it, or give it to someone else. These are the tops factors to remember when considering leasing vs. buying.
Pros and cons of leasing
Lease payments are normally much lower than the monthly loan payments for a new purchase. They depend on the following factors you need to consider regarding leasing vs. buying:
Pros
Rent charge: This fee pops up as a dollar figure instead of a percentage. But it’s the equivalent of an interest rate. Remember that when considering leasing vs. buying.
Residual value: This is the car’s value when the lease is up, with its depreciation calculated in. If you choose to buy the car once your lease expires, this is the amount that you’ll pay.
Taxes and fees: These are included on the lease and affect your monthly cost. Some dealers require a down payment for a lease. The more you put down, the less your lease amount will be.
Remember that putting too much cash down on a vehicle you’ll ultimately be handing back to the dealer might not make sense for your situation. If you’re sure about buying it when the lease is up, the down payment will lower the purchase cost.
Sale price: This is something that’s negotiated with the dealer, just like when you purchase a car.
Length of the lease: This is the number of months you would agree to lease your car.
Lower monthly costs: If you choose to buy a car, the lender will give you a repayment rate based on your down payment and credit history. This means you can get stuck with a long-term price of $250 or over– a process that could take 4 to 7 years to finish.
But if you choose to lease a car instead, you’ll obtain a 12- to 36-month offer with a fixed payment that is generally lower. If you don’t want to drive a luxury brand vehicle, you can find a lease agreement to get your monthly income under $200.
You’d still have the overhead costs and sales tax, but it’s a more affordable option to keep in mind when considering leasing vs. buying.
New car every couple of years: For many folks, there’s nothing like the feeling of a brand-new car. When a lease expires, you can give it back and get another new car. By leasing, it also means you get the latest advances in car technology every couple of years.
Worry-free maintenance: Leasing a car eliminates issues with a warranty. When you buy a new vehicle, it can lose a significant amount of its value as soon as you drive it off the lot.
If you get into an accident or it breaks down before you get through the first year, you could be stuck with a massive repair bill, assuming it can ever be operational again.
Getting an extended warranty isn’t affordable for many families either, with the price sometimes as much as 10% of the listed price of the car. Leasing a vehicle gets rid of this fear. You’re always covered if something breaks down because you’re just renting that vehicle.
This means the manufacturer or dealership will correct the situation if something happens that isn’t your responsibility. Some contracts have stipulations against this advantage. So be sure to review the terms and conditions of your agreement very carefully.
No resale hassles: You return the car unless you choose to purchase it. You only need to worry about settling any end-of-lease fees, including those for additional mileage on the vehicle or abnormal wear.
Potential for tax deductions: A lease might afford you more tax deductions than a loan would if you use your vehicle for business purposes.
That’s because the IRS lets you deduct the financing and depreciation costs of every monthly payment. If you’re leasing a luxury car, the amount you can write off might be limited, though.
We don’t know about you but we definitely think this is vital information when considering leasing vs. buying.
You will consistently drive newer cars: When leasing a vehicle rather than buying it, you can grab the latest models of your preferred brand every 1-3 years.
Even though that means you’ll always have a car payment to make, it also gets you out of owning a vehicle that might not be great to drive anymore. You’ll need to meet the agreements in your contract to avoid extra costs.
But it’s an advantage of leasing that permits most drivers to begin driving something new. You’re never put into a situation where you have to pay extra to keep the car running if anything bad happens because you have enough coverage under your agreement.
At the end of the contract, you can upgrade, turn in your car, and pick out a new one with your licensing, sales tax, and down payment.
You get to avoid issues with depreciation: Over the first 4 years of ownership, a new car will lose approximately 60% of its total value. A quarter of the depreciation part generally occurs immediately.
When considering leasing vs. buying, that means you can lose thousands of dollars of value simply by driving the vehicle home, which puts you underwater on the loan for the first 12 to 24 months. You’ll obviously require insurance coverage to cover that issue if you total the vehicle during this period.
But you wouldn’t have to worry about this problem when you lease a car. You’ll simply drive it until you’re ready to take on a new lease.
You may be able to buy the car you’ve been operating at a discount after your contract expires, which could even save you some money in the long run.
Cons
Expected mileage: Your lease sets the maximum digit of miles that you can drive the car per year. Most leases come with a 12,000- or 15,000-mile annual allotment.
The monthly payment will go up slightly if you go for the higher yearly mileage. If you surpass the contract’s mileage limit, you’ll be expected to pay the dealer for every extra mile at the end of your lease.
No Ownership: The mileage limitations of a lease can get in the way of how much and how far you drive. Furthermore, drivers who would wish to make modifications to their cars should understand that fees could apply.
For instance, there might be extra costs at the end of the lease because of the need to reverse any changes that they make. Remember this when considering leasing vs. buying.
Lack of control: Most contracts restrict the full number of miles you can drive over the agreement’s period. You may need to report to the dealer for an odometer reading in extreme cases over the lease’s lifetime.
If you want the most inexpensive vehicle possible, you’ll experience some major restrictions in this area. Most leases will allow you to drive somewhere between 12,000 to 15,000 miles yearly.
You also have to keep the vehicle in immaculate condition, usually defined as “resalable,” to avoid any added reductions or costs to your security deposit. It can cost you a few thousand dollars of additional fees if you violate these terms.
You must prove that you have a steady income source to lease a car: Dealerships won’t approve an offer to lease a car if you cannot prove that you have income, employment, or sometimes even both. Having a regular paycheck only sometimes meets this obligation.
This problem can be challenging for self-employed individuals, contractors, and individuals who work seasonally. Even if you receive approval to lease a car under these conditions, you must have a way to meet your monthly payment obligations.
Failing to do so can lead to repossession, credit score troubles, and many other things. What do you think so far about leasing vs. buying?
Extra costs: As we’ve mentioned, fees in your contract apply to modifications to the car, excess mileage, and any other excess wear and tear. There’s probably also an early termination fee if you choose to end the contract early and an acquisition fee.
Once your contract ends, you might have to pay a certain amount to cover what the dealer pays to clean and resell the car. Unless the lease includes gap insurance, you might also owe something related to accidents that you might have had that your insurance won’t cover.
Ultimately, it’s more expensive to lease cars long-term rather than buy one and use it for many years.
If you choose to take out a loan to purchase a car, then we recommend using an auto loan calculator to decide the loan term and interest rates that best suit your lifestyle and needs.
Most insurers will require you purchase gap insurance: Whether or not you purchase it directly from a dealership or through an insurance provider, gap insurance is almost always a must when leasing vs. buying.
This policy covers the amount of the vehicle’s value that adjusts once you drive it off the lot. Most of the guidelines remain in effect for at least three years, which could be part of the upfront costs you pay to begin the agreement.
If you were going to buy a car instead, then this charge would be optional. You can opt to take on the risk personally if you choose.
You won’t receive credit for unused miles: Your lease will define the exact number of miles permitted over the agreement. If you don’t use your full quota, you won’t obtain any credit for that result when you turn in your car at the dealership.
If you go over, even if it’s only by a mere mile, then you’ll have penalties or fees to pay. Every lease is distinctive, meaning you could pay up to $0.50 for every mile you go above the limit listed in your contract.
This should definitely be taken into consideration when thinking about leasing vs. buying.
If you go over more than 5,000 miles, that could add $2,500 to the final price of your lease. You may have extra wear-and-tear fees to settle because of this problem, lowering the financial benefits of this method.
Your monthly payments never stop: The problem with leasing is that you never get a break from those pesky monthly payments. You’ll ultimately pay off a loan when you own a car.
You can even buy one outright with credit or cash to avoid the financing process entirely when considering leasing vs. buying. This problem might not be an issue for some households because it’s a predictable cost. But it can be a critical consideration for others.
Pros and cons of buying
When you purchase a car, you can keep it for as long as you wish to do so. Generally, you’ll make a more increased down payment and a slightly higher monthly loan payment if you finance your car, compared to lease payments for the same vehicle.
But there are ways to lower these amounts. You can consider purchasing a certified pre-owned car, a less expensive new car, or a used car. Maybe you’ve saved and invested finances with a specific car purchase in mind.
These are things to keep in mind regarding leasing vs. buying. If you can afford to pay the whole cost of the car in cash, that’s even better as far as the ultimate cost is concerned.
Monthly car loan payments are estimated based on the interest rate, the sale price, and the number of months it’ll take to pay off the loan. Let’s break it down:
Pros
No restrictions: Unlike leasing, you’re not bound to pay fees associated with mileage and wear and tear on the car. Since it’s your car, you pay for service and repairs on your own time.
Potential for Tax Deductions: If you use your car for personal AND business purposes, the IRS will let you deduct costs and depreciation that are related to that business use.
You need to keep meticulous records to support your filing, though, so you fully understand what’s implicated.
Total control: You get complete control over how you improve your car or, for example, modify how it looks.
If you financed it when you bought it, once that loan is paid off, you can keep it until it clonks out, trade it in, sell it, or give it to a family member. You decide what to do with it.
Long-term cost: It’s more affordable overall to purchase a car and keep it for as long as possible. So bear this in mind when considering leasing vs. buying.
Cons
Driving Costs: According to a study performed in 2022 by AAA, driving a new vehicle for about 15,000 miles costs $10,728. Charges included insurance, fuel, and maintenance.
Rapid depreciation: New cars can forfeit 15%–25% of their value in the first 5 years of ownership. If you assume your car is an investment when considering leasing vs. buying, then this is a drawback. But, if you’re the type of person who buys and keeps a car for years, then it shouldn’t make a difference.
Takeaway
Determining between leasing vs. buying a car will depend on your driving needs, lifestyle, and financial situation.
Leasing can sound appealing if you’re looking for lower monthly expenses, want a new car with newer technology every couple of years, and don’t want to concern yourself with specific tasks like selling your car.
Leasing can also set you up with a luxury model that you otherwise wouldn’t be able to afford. Purchasing a car means owning it outright if you paid cash for it or are building equity as you pay off a car loan.
You’ll have complete control over your costs and can service or repair it according to your requirements. You’ll also be free to drive it as much as you want, modify your car, and get rid of it on your terms. But overall, buying has proven to be a better financial decision.
Still not sure what to do and whether or not to lease or purchase a car? This fantastic read from Amazon can help you out: Auto Buying vs. Leasing (INSIDER’S GUIDE TO AUTO BUYING AND LEASING)
Be sure to share your thoughts with us regarding leasing vs. buying. But in the meantime, don’t leave yet! Urban Cars Blog has lots of great advice and tips to share with you. For instance, did you know about these 10 Foreign Cars To Stay Away From Purchasing?
