Which is better- to buy a new car or lease a new car? Well, your choice will depend on various factors, such as your age, your travel frequency, the distance you cover, and the place where you live. But before you make any decision, you need to do your research and see which option suits your needs.
We have put together some information regarding leasing a car and buying a car. Read on to understand the differences between the two.
What is car buying?
Car buying is the traditional and most popular way to acquire a car. You find a car that appeals to you, you negotiate its price, and then take it. You can take a car loan to pay for the car or use your savings. When you finance a car through a loan, the lender holds the title to the vehicle until you finish paying off the loan. Once you are done with repaying the loan, you can take the title and own your car free and clear.
Advantages of car buying
- You own the car [this is probably one of the most significant benefits of buying a car]
- Very economical in the long run
- No penalties for additional mileage, so you can drive as much as you want
- You will not make any payments once you have paid off the loan
- Financing is a lot easier than leasing
- Refinancing can save you money in the long run
- You can sell the vehicle when necessary
What is car leasing?
Leasing a car involves renting a car for a certain period. When leasing a car, you don’t pay the full purchase price like you would when buying a car. You only pay for the amount of depreciation that is expected to occur during your lease period, plus fees and interests. Usually, these payments are lower than a loan payment. Upfront costs will include the first month’s payment, security deposit, registration, taxes, and any other applicable fees. If you are considering leasing a car, you need to find a reputable dealership and fill the online auto lease application form.
The benefits of leasing a car
- Lower monthly payments compared to financing the car
- The car will always have warranty coverage
- Trading-in a leased car is pretty easy
- You can save some money on sales tax
- The down payment may be lower
- Low costs for repairs
- A new car every two to three years
- You will be able to get the latest technology
What are the differences between buying a car and leasing a car?
Now that you have a little knowledge of car buying and car leasing, and their respective benefits, let’s take a look at some of the differences between these two.
Car ownership
Car ownership is probably the main difference between buying a car and leasing a car. When you buy a car, you own it and can keep it as long as you want or even sell it if you wish as long as you have the title. On the other hand, when you lease a car, you are essentially renting it on a long-term basis, depending on your lease term. You don’t own the car. You only use it until your lease period expires. The monthly payments you make when you lease a car are just to maintain your temporary possession of the car.
Upfront costs
When you opt to buy a car, you will need to put some money down, usually as much as 10% to get the best financing rates possible. On the other hand, leasing requires far less upfront, and in some cases, even none at all. So, if you have a tight cash flow, leasing a car may be the best option.
Length of ownership
The term ‘ownership’ basically means the time you have the car in your ownership. When you purchase a car, you can keep it as long as you want or as long as it completely wears off. But a lease, on the other hand, is just for a specific period, usually between two to three years. So when your lease period expires, you must return the car. There are usually penalties for returning the car early or late.
Monthly payments
Another key difference between buying a car and leasing a car is the monthly payments. For car buying, the monthly car payments are usually higher than car leasing. This makes car buying expensive while you are still paying off the loan. But once you have finished paying off the loan, it becomes cheaper to own the car.
For car leasing, the monthly payments are generally lower because you are only paying for the depreciation that is expected to occur during your lease period. You don’t pay for the entire cost of the vehicle like you would do if you opted to buy the car. Since the monthly payments are generally lower in car leasing, you can get a nicer vehicle with the same monthly payments as you would have with buying.
Vehicle return or sale
Once you have purchased your car, it is yours to do with whatever pleases you. When you are ready to get rid of it, you can either sell it on your own or trade-in. This can be quite a hassle. But with a lease, it’s pretty easier. You simply drive it back to the dealership, hand them the keys, and walk away. There will be a few fees and paperwork, especially if you return the car in good condition and you went over the allowed mileage.
Mileage
Another primary difference between buying and leasing a car is the mileage. With car buying, you drive your car without worrying about mileage since there are no mileage restrictions. You can drive your car as far as you want. This isn’t the case with car leasing. When you lease a car, there is a mileage that you shouldn’t exceed. If you exceed it, you will be penalized. Usually, the mileage is between 10,000 – 15,000km/year. When you return the car after your lease has expired, the mileage should be at or below the agreed-upon limit if you don’t want to pay hefty penalty fees. So if you are a person who loves traveling long distances, leasing a car may not be the ideal option.
Maintenance
If you buy a car, you can do whatever you want with it. It is purely your decision to serve it frequently or not. It will be your loss if the car is poorly maintained. But if you lease a car, you need to ensure that you return the car in good shape because the dealership may still try to sell the car. If you return the car in a bad state, you will have to pay extra to cover the damages. So if you are a person who is rough and tough on cars, leasing may not be the best option.
Buying Vs. leasing a car: what’s the best option?
People chose to buy or lease a car for different reasons. For instance, if you prefer the idea of owning a Nissan Armada and prefer not to be limited to a certain mileage, and you don’t want to be stuck in a perpetual monthly payment cycle, then buying would be the best option.
On the other hand, if you love the idea of driving a new car every few years or driving a car that you wouldn’t be able to afford as a purchase, then leasing would be the best option. Moreover, car leasing is also easier for tax costs.
So when it comes to choosing between the two, it generally depends on your personal needs and preferences.
