Getting a new car is a big deal. Next to buying a home, it’s one of the biggest financial moves you’ll make in your life. Once you choose a make and model, you’re faced with a much bigger decision: buying or leasing. Unfortunately, there’s no one-size-fits-all approach here. Each customer brings unique preferences and financial needs. We’ve put this guide together so everyone can better understand the financial implications of buying versus leasing and make smarter decisions about their car purchase.
Reasons to Lease a Car
A car is a depreciating asset. The moment you drive it off the lot, it loses some of its value. For car buyers, this is the tradeoff they make in exchange for its resale or trade-in value down the road. By leasing the car, you’ll pay the cost of depreciation with your monthly payments and avoid other costs, like repairs and maintenance.
Always covered under warranty
Most new car leases are written for three-year terms. In that time, your car will always have warranty coverage and any repairs will be done by the dealer. So whatever strange noise your new car may make, you’ll have the peace of mind that it won’t cost you a dime.
Lots of negotiables
Dealers have much more wiggle room on a lease than a sale. In addition to negotiating the length and mileage terms of the lease, a dealer may lower the security deposit, offer higher rebates or lower the selling price.
Reasons Not to Lease a Car
Your credit isn’t great
In order to get a fair lease, you’ll need above-average credit–usually 720 or higher. Anything less and the numbers won’t work out in your favor.
You drive a lot
Most leases require you drive 20,000 miles per year or less over the three-year term. This is done in order to preserve the car’s resale value after the lease ends. If you make frequent cross-country trips or have a long daily commute, then you should consider buying.
You’re rough on cars
Your dealer has to resell the car at the end of the lease, so they’ll require you keep its interior and exterior in good condition. If you’re someone who jumps the curb or is prone to fender benders, leasing a car may be too high a risk for you.
Reasons to Buy a Car
You’re buying used
One of the golden rules of car buying: if you can pay in cash, then buy used. When you buy a used car, someone else has already paid the depreciation on it. That means much less risk, and typically a better deal, for you.
We’ve seen it time and time again: people in their early 20s get talked into leasing a nicer car than they could ever afford to buy. If you’re younger and still building credit, buying is likely your best option. Having to make that down payment and take out a loan will keep your wishlist in check and force you to make a more responsible decision.
You can maintain a car for 10+ years
The better you maintain your car, the better its resale value will be when you pay it off. If you have a history of owning cars for 10+ years, purchasing a car will allow you to maximize its resale value and take advantage of its remaining equity.
Reasons Not to Buy a Car
It rarely makes financial sense to purchase a depreciating asset. In fact, in some cases, rapid depreciation could lower your new car’s value to the point where you owe more than it’s worth.
You may never own it
“I just want to own it!” We hear this a lot with new car buyers, but there are two statistics to keep in mind here. First, the average car loan is 70 months. Second, the average trade cycle is 4.5 years, or 54 months. That means, for most car buyers, they never own it–and never see the residual equity after paying it off.
Despite what you may have been told, buying a car isn’t a gut decision–it’s a mental one. Put all the intangibles aside–the pride of ownership, how much you like the dealer and so on–and you’ll see that car buying is a true numbers game. Fortunately, we have plenty of practice at it. Whether you’re buying or leasing, our expert negotiators will take care of all the legwork to deliver a fair deal in less time. Drop us a line today and we’ll get started.