When it comes to having a car, you have two options: buy it or get it on a lease. There are short-term cost advantages to leasing, but you lose the asset ownership benefit over the longer run.
The decision depends on your budget and personal preference. However, to make your decision easy, we have mentioned the pros and cons of both options.
Low monthly payments: When it comes to leasing a car, the cost of doing so is much lower than buying one. The down payment for the vehicle may be little or none, and you don't pay any sales tax.
Repairs: Since your leased car is typically brand new, you'll have a warranty that will cover most large unexpected repair bills related to vehicle function. However, when it comes to regular maintenance, you are solely responsible for it. Again, with a new car, this is generally limited to your oil change and tire rotation.
Payment: Even if you have an adverse credit history, you'll still have the opportunity to lease a car. This is because leasing companies are not as strict as other lenders.
Drive new cars: Once the lease period ends, you can go ahead and get a new vehicle again on lease. This means you'll be exploring new vehicles every few years, which you might not experience if you were buying them instead.
Expensive: When you lease a car, you're going to be paying an amount monthly for the length of the lease. This cycle continues until you officially buy one for yourself. Once the contract ends, you can either buy the same car or lease another. In both cases sticking with the lease car will only lead to you having to bear this continuous expense.
Higher Insurance Costs: Whether you buy or lease a car getting the vehicle insured is always required. However, when it comes to leased cars, the insurance rate is pretty high, potentially offsetting other short-term savings.
The contract: Once you get a vehicle on lease, you don't have the option to cancel it or walk away without incurring hefty fines. There are scenarios in which there is a possibility to cancel the contract, but it is at the leasing company’s discretion.
Usage Limits: Leases set a maximum number of miles that can be driven each year. Limits are typically set at 10,000 miles per year. If you exceed this amount, you will pay a set amount for each additional mile driven.
Advantages of buying a car
You own it: True, it is a very quickly depreciating asset, but at the end of the day, you own the car. When selling the car, you keep any funds remaining after paying off your loan and taxes. You also have the ability to make modifications to suit your needs.
More Options: You have access to a greater number of makes and models when buying a car. Additionally, you can purchase a used car, which may cost even less per month than leasing.
There's no mileage limit: If you want to drive a vehicle without having to worry about mileage, buying it is the best option for you. There is no mileage limit on cars that you own. However, lease companies put a certain amount of mileage, and if you cross that, they charge a fee.
Disadvantages of buying a car
The cost: Owning a car isn't cheap. You have to pay a hefty amount upfront to buy a vehicle, and the monthly payments are typically higher than when leasing. Additionally, you will pay sales tax and registration. In some states like Arkansas, you also pay an annual personal property tax on the vehicle.
The hassle: The make and model become much more important when you are buying a car. Since you are planning to own it for a longer period of time, aspects such as reliability and long-term maintenance costs should factor much more heavily in your decision.
Depreciation: A newly bought car hits the peak of depreciation in the very first few years. CarFax estimates most cars lose 20% of their value within the first 12 months of ownership. This means you're immediately losing a portion of your investment; purchasing a slightly used car can offset some of this loss.
If you can get zero-percent financing, buying a car is almost always the better option. You own an asset, and you avoid fees and penalties for heavy car use. In limited cases, leasing makes sense; in particular for those who want to frequently change cars and have short commutes.