It’s 2020 and you’ve decided it’s time for a “new you.” To go with the new you, you’ve decided you need a new car. Whether you’re looking for a hot new sports car, a fun convertible, or an SUV with updated safety features, you’ll need to make one critical choice: to buy or to lease. If you need to get rid of your old car, you may want to first understand your kbb car value. There are ten key differences between buying and leasing. By understanding the pros and cons of each option, you can drive off the lot in a purchased or leased car that’s right for you.
1. Ownership
The primary difference between buying and leasing a car is ownership. When you buy a car, you own the vehicle and can keep it for as long as you choose. When leasing a car, you’re essentially renting it on a long-term basis from the dealership for a specific period of time.
2. Monthly Payments
Many customers choose to lease a car because the monthly payments are approximately 30% lower than purchasing a car.
3. Up Front Costs
When you choose to purchase a car, you’ll likely need to put some money down, often as much as 10% to get the best financing rates available. Leasing requires far less up front, and in some cases, even no money down. If your cash flow is tight, leasing offers some more flexibility.
4. Length of Ownership
Using “ownership” a bit loosely here, we mean the time that you have a car in your possession. When you buy a car, you can keep it for a year or you can keep it until the wheels fall off and you drive it into the ground. A lease is for a very specific time period, normally between two and three years. If you return the car early, there are often early termination penalties, so the time of “ownership” is a very specific duration.
5. Vehicle Return or Sale
Once you buy a vehicle, it’s your’s to do with as you please. When you’re ready to get rid of it, you can either use it as a trade-in or sell it on your own. With a lease, it’s a lot easier. You drive it back to the dealership, hand them your keys, and walk away. The downside is that when you do walk away, you won’t be any richer.
6. Future Value
You’ve heard the old adage, “buy appreciating assets, lease depreciating assets.” If you’ve ever wondered what that means, let’s break it down. The thought is that things that increase in value over time, like houses, should be purchased. You’re making an investment in which you could potentially make a future profit. Cars lose value over time. So the idea is that you would lease it since you would never make any money back on it.
7. End of Term
Whether you finance your purchase or lease your car, both options have a set time period during which you’ll be making payments. The great news with a purchase, is that after you’ve paid off the car, there are no more payments. This is the flip side of the future value argument. All of a sudden, you have a few extra hundred bucks each month. With a lease, you never get that luxury. You make payments until it’s time to return the vehicle.
8. Mileage
Leases come with a mileage limit as part of the agreement – normally between 10,000 – 15,000/year. When you return the vehicle after your lease is up, the mileage needs to be at or below the agreed upon limit or you’ll be charged an overage fee. If you have a long commute, drive as part of your job, or just like long road trips, keep this in mind when leasing or purchasing. When you buy, the car is yours to drive as far and long as you like.
9. Wear and Tear/Maintenance
If you’re pretty rough and tough on your cars, leasing may not be a great option. Keep in mind, it’s a long-term rental, which the dealership will then turn around and try to sell. If you return the car in poor condition, you’ll have to pay extra.
10. Customize
For most lease agreements, the car needs to be returned to its original condition prior to returning it. So if you like 20” rims or choose to add a short-shifter, all that needs to come off prior to returning the car. If you buy, you can add all the bling you want and never have to worry about taking any of it off prior to selling the car.