Choosing between leasing and buying can be a tricky thing to do. Follow this quick reference guide to learn whether you should lease or buy your next car.
Deciding whether you should lease vs. buy your next car can be a financially fraught decision. Essentially, you are doing an analysis to decide between a long-term investment or a shorter-term outlay. Follow the steps below and you can be sure that you’ll make the right financial decision when it comes to choosing between lease vs. buy.
What you need to know about lease vs. buy
It’s important to know a few things about lease vs. buy when you are in the market for a new car.
What you need to know about leasing:
- When you lease a vehicle, you are basically paying to rent or borrow that vehicle for a set period of time.
- At the end of a lease you generally don’t walk away owning any “assets.” That means that at the end of the lease you can’t turn around and sell it.
- You don’t need to put down a lot of money at the beginning of a lease.
- Leasing is a form of financing where you only pay for the time you use the car–you don’t pay the full price of it.
- When you lease you don’t actually own the car, the company that holds the lease does.
What you need to know about buying:
- You are paying to own the car you have purchased outright and at the end of the purchase you own an asset that you can sell.
- You will generally need to put down a good chunk of cash upfront to buy a car.
- When you purchase a car you are using a loan, cash and/or the value of your trade in to buy it.
- When you purchase a car through financing the bank that you have financed the vehicle through holds the title until you pay off the loan. You will own the car when you pay off the loan.
Many buyers today are opting for leases for a variety of reasons. In fact, about 3 out of every 10 cars that leave dealer lots are leased, today. Why is leasing vehicles so popular?
- For one, interest rates have been historically low for a very long time making leasing a car very appealing to consumers.
- Car prices have risen significantly in the last few years and most buyers think it’s’ more economical to lease a car than it is to buy it (We’ll explain why this may not always be the case, later in this guide)
- Additionally, monthly payments remain the same throughout the life of a lease
- Many manufacturers still offer included maintenance in most deals.
But leasing isn’t always better than buying. Read on to find out why.
Benefits of leasing a car
Some pros of leasing a car include:
- Generally lower monthly payments. Since you’re only paying to borrow the car for a shorter period of time, you don’t have to outlay as much per month.
- That means you can generally get more car for your money.
- Lower out-of-pocket initial costs – most leases require less upfront
- You can get into a new car each time your lease ends
- Payments remain the same throughout the life of the lease
- Some manufacturers include free maintenance for the life of the lease so you won’t have to pay to have your brakes fixed or your tires rotated.
- Leasing allows you to get into the most technologically advanced version of a vehicle (and technology is changing fast!) for an affordable price.
- You can save on sales tax. Depending on where you live, you may only have to pay tax on the amount of money that you put down on the car. Check your local tax statutes to be sure.
Disadvantages of leasing a car
There are a number of cons to leasing a car. They include:
- No ownership. At the end of a lease you don’t own the car and you can’t sell it or get rid of it before the lease is up without paying a hefty price.
- You pay for the most expensive part of the car ownership–the depreciation.
- Mileage Limits: All leases come with relatively strict mileage limits. For each mile you go over that limit you’ll have to pay a fee and it becomes very expensive very quickly. Most companies charge a per mile cost that can range anywhere from $0.12 per mile to $0.25 per mile and higher.
- Limited options if you want to customize your car: You won’t be able to truly customize your car if you lease it. If you do anything mechanically or physically to the car, the fees and penalties you pay at the end of the lease can tremendous.
- You’ll always have a car payment: Since you’re leasing you’ll never see the end of monthly payments.
- You may pay more for your insurance: In some situations you could end up paying more for your car insurance depending on your age, location and the cost of the vehicle you are leasing. This is because most leases require that you carry a higher level of liability insurance and require more coverage.
- It’s much harder (and can be more expensive) if you have bad credit. Most leasing agreements favor very good credit scores.
- You may have to get gap insurance. Gap insurance covers the leased car if it is totaled or stolen.
- If you want to drive for a ride sharing company, you need to read the fine print. Leases can include restrictions on the way you use your car and where you drive it (some won’t allow you to drive the vehicle out of the country).
Benefits of buying a car
While buying a car is a costly proposition, it has many benefits including:
- You own the asset and can sell it any time.
- You can use the vehicle however you want.
- You can put as many miles as you want on the vehicle.
- You can customize it in any way you’d like.
- You can use your car as a way to purchase a new car in the future – by using it as a trade-in.
- Lower insurance premiums.
- Eventually you won’t have to pay any car payments!
- If you have poor or low credit it’s generally easier to buy a car than it is to lease it.
Disadvantages of buying a car
There are a few cons to purchasing a car and they include:
- Upfront cost- Generally you need to put down more up front when you buy a car.
- Monthly costs can vary depending on what kind of maintenance you need to do to keep your car running.
- You’ll pay interest on the entire cost of the loan. If you choose to finance your car you’ll have to pay for it all.
- Sales tax becomes a big chunk of the cost. Since you’re buying the car you will have to pay the sales tax on the cost of that car, not just a portion of it.
- The warranty will eventually run out and you’ll be on the hook for repairs.
- There’s no guarantee what your car will be worth when you are ready to sell it.
How do you compare lease vs. buy a car?
To compare lease vs. buy a car you should take three things into consideration:
- Monthly costs including insurance, payments (loan or lease), and maintenance. Be sure to allocate a monthly cost for maintenance since it is going to be required to keep your car in good working shape.
- Overall costs, including upfront costs (like down payments) and depreciation.
- The flexibility of your needs and wants.
Monthly costs should include payments, insurance and maintenance. If you want to get the lowest payments, leasing might be best for you, but bear in mind a few things:
- You will ultimately pay more for a lease in the long run.
- You also won’t own the vehicle at the end of your lease. Think of it like renting—you don’t own the place you rent and when you have to pick up and move, you’re leaving with only what you brought in.
- If you buy your car, your payments to the bank will remain the same.
- Initially, you will pay more interest and depreciation on your loan before you start knocking down the principle of the loan.
You should also consider insurance costs.
- If you decide to lease vs. buy, be sure to check the fine print and see how much insurance the lease requires you to carry. Many times a lease agreement requires you to carry more insurance than you may usually choose to.
- When you buy a car you can choose to put as much or as minimal insurance on your vehicle. If you are financing it however, your lender will require a certain level of insurance until you pay it off.
Be sure to add in maintenance costs, too.
- Some leases specify that they will cover certain maintenance repairs during the length of the lease. Be sure to familiarize yourself with these and know if there is any additional cost associated with them
- When you buy a car you will be responsible for the maintenance (outside of warranty repairs). The longer you own the car the more you should save for regular maintenance.
- Basic maintenance for an average car, according to NerdWallet can run between $100 and $3000 every few months. Be sure to add this to your calculations when comparing a lease vs. a buy.
- Also be sure to include the replacement of worn out parts like brakes, tires and wiper blades. They can cost anywhere from $50 to $400 and need to be replaced or updated at least every year depending on where you live and the conditions you drive in.
Consider the costs of down payments or up-front capital cost reductions, too. These are fees that you will be required to pay when you purchase or get a loan to purchase a vehicle.
- If you decide to lease your vehicle there are certain up-front costs (title and registration) that you have to pay. In some states you’ll also be required to pay the taxes on the lease as well. Be sure to factor this cost in when you are doing your comparison.
- If you decide to lease you can also consider the option to pay what is known as cap cost reduction. This is an amount over and above the amount required for taxes, title and first payment fees. You can use this additional money to reduce the monthly cost of your lease.
- If you decide to buy, you may consider trading in an older vehicle to reduce the cost of the new one or, you may decide to put down a large chunk of cash to reduce the size of the loan you take out. Either option will reduce your monthly payments and the amount of the loan you have to take out.
Finally consider your needs and wants since a car purchase or lease is much more than just a functional buy. It’s important to consider things like:
- How long you plan to keep the car. On average most people keep a vehicle for anywhere from 6 to 11 years. If you are planning to keep a vehicle for longer, then its best to buy over leasing. Leasing will cost you more in the long run.
- How many miles you drive per year. This is crucial in the decision process since most leases are very restrictive in terms of how many miles you can drive per year. If you drive more than 12,000 miles per year it makes more sense to purchase a car than it does to lease it.
- How you want to use the car: i.e. Are you going to drive it off-road all the time and will it get beaten up? Are you going to use it to haul kids to various practices, classes and events? Are you going to use it to drive for a ride sharing company?
- What your future may hold (kids, dogs, etc.). If your family is expanding (or contracting even) in any way then you should consider those needs and wants. Choosing the right vehicle for your lifestyle is important since you’ll be in a lease for a minimum of 3 years.
Once you have run the numbers and considerations for each of these items, you can determine which option is better for you. Remember that choosing whether to lease vs. buy is often a very personal decision and you need to take into consideration all aspects of your lifestyle and needs as well as your budget restrictions in order to find the right option for you.
What is cheaper, leasing or buying?
Over time, buying is cheaper than leasing –particularly if you plan to keep your car for 6 years or more. If you took the cost of purchasing your car and amortized it (or split divvied it up) over the number of years that you owned it, you’d find that you would pay less over the life span of that vehicle than you would had you leased it. While you could get into a new vehicle every 3 to 5 years, over time, you’d pay considerably more to lease than you would if you bought – even when you include maintenance and repairs.
Is leasing or buying better?
In general buying is better than leasing because at the end of the loan you own an asset that you can sell or trade in. Of course, this is highly dependent upon your own financial situation – but a good general rule of thumb is that buying is always better than leasing.
When should you lease vs. buy a car?
You should lease a car over buying it if you have very good credit, have specific needs (like entertaining clients or using it for your business) or if you want the latest and greatest technology. You should also be comfortable always having a car payment if you decide to lease vs. buy.
How to find Kia lease deals
There are two ways you can find Kia lease deals. You can lease quickly and easily using our app! The site uses geolocation to find out where you are and automatically finds deals for you. Look for the model and trim you like and you can find nearby offers. We’re really meticulous about making sure the deals you see in our app are actually on the dealer lots, too. You can also find Toyota lease deals visiting Kia’s site and putting in your zip code. Once you do, a list of deals in your area will come up. Just know that you might find that your chosen vehicle is not in the dealer’s inventory, lease deals change month to month so be sure to check regularly.
How to find Hyundai lease deals
To find Hyundai lease deals visit Hyundai’s site and put in your zip code. Deals will appear based on your state and location. It will detect where you are and show you nearby deals. Lease quickly, easily, and securely using our app. Deals change monthly so check back on the regular.
How to find Nissan lease deals
If you’re looking for Nissan lease deals, it may suit you to check out the Nissan page on AutoGravity. There you will find deals that are in your area and meet your needs. You can also find Nissan lease deals, by visiting Nissan’s site and submitting your zip code. Deals will show up based on where you are looking. Nissan’s lease deals also show up on our site. The deals change monthly so be sure to check back soon.
So, should you lease or buy your next vehicle?
It all depends on your needs, wants, and what your life is like. Follow this quick reference guide above to determine what to do when analyzing between lease vs. buy.