Leasing vs Buying: Which is Right for you?

Every day, Americans struggle with major financial decisions. Juggling a mortgage, student loans, utilities, and more can be overwhelming. On top of that, many of us also have to figure out how to pay for a car — do you lease it or buy it? While both options will get you a ride, there are key differences between the two.

On the one hand, buying a car gives you the freedom of ownership, but it also requires a large down payment and comes with long-term commitments. On the other hand, leasing a car is much more affordable and allows you to switch up your ride every few years, but it also limits your ownership and comes with restrictions.

To help you decide whether buying or leasing is right for you, we’ll break down the key differences between the two and help you weigh the pros and cons. By the end, you’ll be able to make an informed decision on what’s best for you and your budget.

What Does It Mean To Lease a Car?

Image by Stevan Sheets | Licensed with CC BY 2.0

Leasing a car is essentially renting it for an extended period. You make regular payments to use the car over an agreed-upon term, usually three to four years. To begin the lease process, you’ll need to pay up-front fees, which cover taxes, dealer charges, and other associated costs.

You and the dealership will agree on a fixed rate for monthly payments, and at the end of your term, you’ll return the car to them. You’ll need to pay extra fees if it has suffered damage or unusual wear and tear. You also have the option to purchase the car at the end of your lease term.

Advantages of Leasing a Car

There are several benefits to leasing a car, including:

• Less money upfront: Compared to buying, you’ll generally pay less upfront for a lease. This includes lower sales taxes in most states and often smaller down payments on the vehicle, if any.
• Lower monthly payments: Monthly lease payments are generally cheaper than car loan payments for a similar vehicle. However, this depends on how much you put down initially and the type of car you choose.
• Repairs covered: Because leased cars are usually newer, the manufacturer’s warranty covers most repairs during your term. That means you won’t have to pay out of pocket for any unexpected repairs.
• Flexibility: Long-term commitment to a single car is unappealing to many drivers. If that sounds like you, leasing is a great option. You’ll have the flexibility to get a different vehicle after a few years and be free of long-term car ownership obligations.

Disadvantages of Leasing a Car

Although leasing has some attractive benefits, there are potential drawbacks as well:

• No equity: Unlike buying a car, leasing doesn’t build any equity for you. Your payments go to the car owner and don’t contribute to your net worth.
• Mileage restrictions: Most leases limit how many miles you can drive, typically 12,000 annually. If you exceed this limit, you may incur fees.
• Additional fees: Some dealers require security deposits, and other charges may apply if you terminate your lease early or decide to purchase the car once your term ends.
• Condition requirements: As the lessee, you’re responsible for the car’s condition when you return it. Excessive wear and tear may incur additional fees.

What Does It Mean To Buy a Car?

When you buy a car, you take title to it immediately. You can own it outright if you pay for it with cash or after you pay off the loan if you finance your purchase. This gives you complete control over the vehicle and its use; you can keep it, trade it in, sell it, or give it away. You’ll also be responsible for all related costs, such as insurance, registration fees, and maintenance costs.

Advantages of Buying a Car

Buying a car has some distinct advantages over leasing. These include:

• Building equity: Each month, you pay a portion of the principal on your loan. Over time, that investment becomes equity in the car. Once there’s more equity than debt, the car becomes a financial asset.
• Fewer restrictions: Aside from loan requirements, you’re free to do whatever you want with the car. That means no fees for scratches or spills at the end of your lease term or personal modifications you may wish to make.
• Potential for tax deductions: The IRS allows you to deduct costs and depreciation related to business use of the car. However, you must keep very detailed records to support this filing.
• Long-term cost savings: Generally, buying a car and keeping it for as long as possible can help you save money over time. This is especially true if you maintain it regularly and purchase a reliable vehicle.

Disadvantages of Buying a Car

Despite the advantages of owning one, buying a car has some drawbacks. These include:

• Higher upfront costs: Some lenders may require a substantial down payment on the car. Depending on your financial situation, this could limit your options or make it difficult to purchase the car.
• Risk of going upside down: If you owe more on the car than it’s worth, you could find yourself in an “upside-down” situation. This is bad news for creditors and puts you at risk of having to pay for a car you no longer have if a total loss occurs and you lack gap insurance.
• Depreciation: The value of your car goes down almost immediately after purchase and continues to do so over time. This means you could lose much of the money invested in the car through depreciation.
• Repair costs: You’re responsible for all repair costs once the factory warranty expires. An extended car warranty can help you manage those repairs but at an additional monthly cost.

Which Is Best for You?

Whether you buy or lease a car is ultimately up to you and your unique financial situation. Consider all the pros and cons before making a final decision that fits within your budget and lifestyle.

Buy Your Next Car at John Sinclair Nissan

If you’ve weighed the pros and cons of leasing versus buying a car and decided ownership is the way to go, visit John Sinclair Nissan of Cape Girardeau, Missouri, for all your car-buying needs. Our extensive inventory of quality new and certified pre-owned vehicles is second to none, and our team of automotive experts is here to help guide you through the entire process. Contact us today to schedule a test drive and experience the John Sinclair Nissan difference.