Buying vs. Leasing: Which Is Right for You?

When it’s time for a new ride, you have some important decisions to make. Do you want a used car or a brand new one? What features do you need? Is an SUV, truck, or car the right choice? Along with these questions, you also need to decide if you want to lease or buy. Let’s explore the difference between leasing and buying and what factors you need to put into consideration when choosing between the two.

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Leasing a Car

A car lease is a common type of car financing that allows you to “rent” a vehicle from a dealership for a certain amount of miles and length of time. You’ll usually make lease payments each month on a car, and in exchange, the dealer allows you to drive it. When the lease contract ends, you’ll either return the car to the dealer or buy it if you want to keep the vehicle — if that’s an option on your lease agreement. 

Benefits of Car Leasing

Here are a few benefits of leasing a vehicle:

• Lower monthly payments: Leasing a vehicle typically results in monthly payments that are around 30% to 60% lower versus purchasing a car. This allows you to drive a vehicle that you may not normally be able to afford.
• No repair costs and low maintenance: If you lease the car for 36 months or less, you’re typically covered by the manufacturer’s warranty during your entire lease. Thus, you won’t have to worry about major repair costs. 
• Tax breaks are possible and pricing is set: The vehicle’s future resale value is already predicted and integrated into your lease payments, so you won’t ever risk losing your money as you would on a loan worth more than the vehicle you are paying off. Also, if you drive a leased vehicle for business purposes, you may qualify for tax breaks. 
• Drive the newest model: A lease allows you to drive a new model every two or three years, which gives you the benefit of enjoying the latest safety features and technological advances.
• Less money upfront: You can lease a car without making a down payment, though there are always going to be some upfront fees that can be rolled into the monthly payment.
• GAP coverage: Most car leases include Guaranteed Asset Protection (GAP) insurance for free, which protects you in case the vehicle is stolen or totaled during the lease. 

Drawbacks of Car Leasing

Here are some disadvantages of leasing a car:

• Expensive in the long run: When you lease, you are basically paying for the use of the car for the first two to three years of its life—when the vehicle depreciates the most. When your lease term ends, you either have to lease another vehicle or purchase one. Either way, you are going to have monthly payments for a long time, whereas if you buy a vehicle, you would be able to drive it payment-free after you have paid off the car loan.  
• Limited mileage: Most leases come with driving limits of around 10,000 to 15,000 miles per year. If you go over this mileage limit, you may incur a very high rate. 
• High insurance cost: Insuring a leased vehicle can be much more expensive than buying a new one. Most leasing companies require lessees to get a higher level of insurance on the vehicle — typically up to $300,000 in liability coverage. This can make your insurance payments much higher than if you had bought a car instead.

Purchasing a Car

The difference between financing a car and leasing a car is that with financing, you are buying the vehicle. While you will still need to make monthly payments, you’ll own the vehicle at the end of your loan term. 

Benefits of Purchasing a Car

Here are some of the benefits of buying a car:

• You get to own your car: Once you pay the full amount of your car loan, you receive your title, the vehicle is yours, and you are free to keep driving it, trade it in, or sell it. Compare that to leasing, where you have to turn in the vehicle when the lease contract ends. It’s similar to paying off a mortgage and calling your home yours, versus years of paying rent on an apartment lease.
• Have the option to sell the vehicle: When you purchase a car, you have the flexibility to sell or trade it in at any time. You won’t be locked into a fixed ownership period. 
• No mileage limit: If you want to drive a car as many miles as you want, it’s much better to own it. A car loan imposes no excess mileage restrictions or penalties, so you can drive across the country or customize it if you want. 
• Discount the depreciation: Depending on your car, it can depreciate in value by about 30% within the first few years. Thus, when you buy a two- to a three-year-old car, you get the benefit of paying a price that reflects a considerable depreciation discount. 

Drawbacks of Purchasing a Car

Here are some of the drawbacks of buying a car:

• Higher monthly payments: With a car loan, you are paying for the full price of the vehicle over a few years. This means your monthly payments are typically higher than a lease. 
• Bigger down payment: Purchasing a vehicle typically requires a large down payment — usually around 10% to 20% — to be approved for the car loan. If you have a poor credit score, you may be required to put more money down upfront or be denied. 
• Maintenance costs can be a burden: Once your car’s warranty expires, you are responsible for paying for all repairs, no matter how small or big. At some point, the cost to keep repairing the vehicle may outweigh the vehicle’s value. 

When deciding to lease or buy, you need to assess your financial situation and lifestyle. When you are ready for a new ride, check out Oxmoor Ford’s vast selection of cars that you can lease or buy. If have any additional questions about this important decision, don’t hesitate to contact us through our website or by phone at 502-426-2500. You can also come and visit us at our convenient location in Louisville, Kentucky.