Getting a car is a big decision many Americans are often faced with.
Depending on where you live, having a car might be an absolute necessity in order to get from one place to the next if you can’t rely on any other means of transportation.
When searching for a car, the answer of whether you should lease a car or buy/finance one always comes up.
Of course, the best solution would be to purchase a car in cash so you won’t have to worry about any extra monthly expenses, but not a lot of people have that type of money lying around.
That leaves us with leasing vs. financing. They both involve a monthly payment, so which one is better?
What’s The Difference?
Leasing a car is basically like renting it. You sign a lease for a fixed term (2 or 3 years on average) and you pay a monthly payment with a fixed interest rate until your lease is up. At the end of your lease, you can trade the car in for another lease or buy a new car.
With financing, you usually put money down on a vehicle and take out a loan for the rest. You are offered an interest rate based on your credit and a term in which you must pay back the loan. Once you pay back the loan (plus interest), the car is yours to keep to continue driving, to sell down the road, or to junk when it no longer runs.
You can also refinance your car loan in the future if you feel you could receive a lower interest rate.
Benefits of Leasing
When leasing a car, the payments can be lower than if you were to finance a car. This can be a huge benefit if you are on a tight budget and don’t want a large car payment.
In terms of repairs, most leased cars are under a warranty, meaning you shouldn’t have to pay out of pocket for anything major, which is a good thing. You should still keep record of routine maintenance and the details of your warranty to confirm it’s still valid.
Another benefit of leasing a car is that you can do so with less money down (some deals don’t require anything down) while I can’t say the same for financing a car. When you lease a car, you have a better chance of getting something newer and top quality for a lower monthly payment.
Benefits of Buying/Financing
Like I said before, when you buy a car full in cash, it’s yours. You don’t have many expenses to worry about, aside from repairs and maintenance, depending on your warranty. You will also have flexible auto insurance options since they are stricter when dealing with a lease or auto loan.
Even if you take out a loan to finance the car, you can still treat the vehicle as if it’s yours while you pay off the loan. You can drive around the country, paint the car purple, or do whatever you want as long as you keep paying the loan.
Like with most other debt, if you don’t pay the monthly payment, you risk late payment fees, bad marks on your credit, or even getting the car repossessed.
The great thing about financing a car is that with each payment, you get closer to owning the vehicle outright. If you take really good care of your car and decide to sell it, you can do that too and try to make a profit.
The Drawbacks of Leasing a Car
The main drawback of leasing a car that I see is the mileage restriction. The main point of having a car is to get where you need to go, and sometimes, you may have to drive long distances.
Leased cars are often newer and more desirable, meaning they have lower mileage. In order for a dealership to continue to lease the car out when you are done with it and keep making money, they need to put a restriction on how many miles you can drive per year. As an example, popular restrictions are 9,000, 12,000, and 15,000 miles per year.
If you have a long commute to work or plan on using your car to visit family or friends out of state, you might not want to consider a lease.
Another drawback is the fact that you must return the car in tip-top shape after the lease or face a penalty fee. If you have kids or pets who will be in the car often, that could be a huge risk in terms of protecting your leased vehicle from damage.
It’s also important to note is that if you wish to terminate your lease early, you could face a hefty fee or even be expected to pay the remaining payments anyway.
While it’s sometimes easier to get a lease because payments are often low, if for some reason you can no longer afford your payment, you’ll be slapped with a high fee for breaking the lease.When it comes to getting a deal on a car, find out if leasing or buying is the better option Click To Tweet
Drawbacks of Financing a Car
A possible drawback to consider when financing a car is longer loan terms. Nowadays people can finance a car for 7 years, which is just too long. Car payments can be high, and in order to get a monthly payment you can afford, you may have to stretch out your term.
The value of cars depreciate over time and if you owe money on a car that you can’t even sell or trade in for a profit, you’ll be doing yourself a disservice unless your plan is to drive that car into the ground.
Even if you never plan on selling your vehicle and wish to drive it until it breaks down, you’ll still have to pay for repairs and maintenance once your warranty runs out, along with your monthly car payment, which might make it more expensive in the long run.
Interest also builds up over time, so if you get a longer term, you may pay way more than the original purchase price by the end of your term.
Another thing you need to worry about when financing a car is your down payment amount. If you’re planning to get a car loan with 0% down and no trade-in, things might not go as well as you planned.
It’s best to make a large down payment so you can borrow less, but if your money is tight and you need a car quickly, you might not have much money to put down. This can lower your chances of getting an affordable loan and/or a decent car.
Define What Your Intentions Are
Both options have their pros and cons and similarities and differences, but either way, you’ll get a car no matter which one you choose. It’s important to ask yourself what your intentions are and what your ultimate goal is.
If you are interested in a newer car with all the bells and whistles and you don’t plan on racking up a crazy amount of mileage, you might want to consider leasing. Just know that once you sign a lease and make payments for a few years, you’ll have nothing to show for it when your lease is up and you’ll have to return the car.
If you’d like to own a car for the long-term and would like more freedom and control over how you use your car, you might want to finance or buy a car instead so you can work toward owning it.
Personally, I would never consider leasing a car for myself. I am not big on driving a brand new car and I want the freedom and flexibility to go where I want, when I want, and not feel pressured to keep my car looking like new (which is nearly impossible when you have a child anyway).
The risks of leasing a car also outweigh the benefits, and I wouldn’t want to be stuck paying penalties and extra fees at the end of the lease.
Which option sounds better to you? Have you ever leased or financed a car? Are you in the market for a car right now?