Buying Vs Leasing A Car: Which is Best For You?

You have two main options to consider when it comes down to payment and ownership of a car:

• Buying.

• Leasing.

Both options have pros and cons, and the decision comes down to your individual priorities.

Let’s discuss the pros and cons of buying vs leasing a car.

Benefits of Buying a Car

Buying a car is the traditional way of getting a vehicle.

But, it has decreased in popularity over recent years.

When you buy a car, you can take out a loan to pay for the entire cost of the car, or you pay with cash.

You own the car outright and can keep it as long as you want.

You have full ownership, and can do whatever you want with it, within the constraints of the law of course.

Ownership

When you buy a car, you own it outright.

You can customise it to your liking, and you have the freedom to do whatever you want with it.

You can drive it as much as you want, and you don’t have to worry about mileage restrictions or excess fees.

From a cash-flow point of view, it’s the far better option assuming you have paid in full.

Equity

Even if you’ve taken out a loan to buy, you’re building equity in it.

Equity is the value of the car minus the amount you owe on the loan.

As you pay off the loan, the equity increases as you’re owning a bigger proportion of the car.

When you sell the car, you can use the equity to put towards a down payment on your next car.

Like buying a home.

The more you pay off, the more you own.

No Monthly Payments

When you buy a car and pay off the loan, you don’t have to worry about monthly payments anymore.

You own the car outright and can drive without any extra costs, aside from maintenance.

Your cash flow will improve once the car is paid in full, which you can put towards saving or investing.

Drawbacks of Buying a Car

There are a few drawbacks to buying a car that we must discuss:

Upfront Costs

Buying a car requires a big upfront cost.

You’ll need to either pay cash or take out a loan.

This means you’ll need a down payment and will have to pay interest on the loan.

This can make buying a car a more expensive option in the short term.

Depreciation

The vast majority of cars depreciate in value over time. This means the value of the car will decrease as soon as you drive it off the lot.

This can make it difficult to sell the car for the same price you paid for it.

It’s estimated that new cars lose 20% of their value in the first year alone, and even up to 50% in the first 3–4 years.

This is a huge downside, and is an area worth considering when paying for a car in full.

My rule of thumb?

Don’t buy a car less than 3 years old.

You’re still able to drive around in nice new cars, whilst avoiding the bulk of the initial depreciation.

Maintenance and Repairs

When you own a car, you’re responsible for maintenance and repairs.

This can be costly, especially as the car gets older.

It’s a worthwhile drawback for owning your own car.

Some people enjoy looking after their cars. A sense of ownership will outshine any little repair jobs that might be required.

Benefits of Leasing a Car

Leasing a car is a newer way of getting a car.

It’s becoming increasingly popular, especially amongst younger people.

When you lease a car, you rent it for a certain period of time, usually two to three years.

You pay a monthly fee to use the car, and at the end of the lease, you return the car to the dealership.

You’ll most likely get a newer one for another 2–3 years.

Lower Monthly Payments

The monthly payments on a lease are lower than the monthly payments on a car loan.

You’re renting the car, rather than buying it outright.

It’s a better financial option in the short term, but you’re not building equity for long term gain.

No Down Payment

Leases don’t require a down payment, which can make it easier to get into a new car without having to save up.

Leasing enables you to drive cars that you wouldn’t be able to afford outright.

This is a positive as long as you don’t assume that you’re wealthier than you are.

No Depreciation Risk

When you lease a car, you don’t have to worry about the car depreciating in value.

The car still depreciates, but… it’s not your car.

At the end of the lease, you return the car to the dealership and walk away, regardless of the value of the car.

In fact, it works in your favour.

Once the lease is up, you can then go and lease a newer, better car for the next few years.

Drawbacks of Leasing a Car

Despite this, there are a few drawbacks which you have to acknowledge:

No Ownership

Even when you’re making your monthly payments, you’re not building equity. You’re not going to own the car once the term is up.

This is a huge downside.

It can compound into other issues, like a lack of investment for your future, by paying for something you won’t own.

Mileage Restrictions

A lot of leases come with mileage restrictions. This means you can only drive a certain number of miles per year.

If you exceed the mileage limit, you’ll have to pay excess fees, which can be quite costly.

This is something to keep in mind if you wish to lease.

Fees and Penalties

Leases can come with many fees and penalties, such as:

• Lease inception fees

• Disposition fees

• Early termination fees.

These can add up quickly and make leasing a car more expensive than you anticipated.

Making the Decision

So, which option is better: buying or leasing?

There’s no one-size-fits-all answer.

As always, we’re not trying to tell you how to live.

It depends on your current financial situation & goals, and your needs for a car.

If you value ownership, equity, and have a more long term outlook, buying is the better option.

If you value…

Lower monthly payments

No down payment

No depreciation risk

…leasing might be the better option.

Some other factors to consider when making your decision:

Your Budget

Buying a car requires a big upfront cost. Leasing requires lower monthly payments for the entirety of the lease.

Consider your budget, and what you can afford in the short term and long term.

How Much You Drive

If you drive a lot, buying might be the better option.

You won’t have to worry about any mileage restrictions and excess fees that you may get when leasing.

How Often You Want to Get a New Car

If you like getting a new car every few years, leasing might be the better option.

You can return the car at the end of the lease.

It’s a great way to continue driving nice, new cars without the fear of owning a liability.

Your Credit Score

Your credit score will play a role in whether you can get approved for a loan or lease.

If your credit score is low, you might struggle to get approved for a car loan, but you might be able to lease.

Use leasing as a way to improve your score, as long as it aligns with the rest of your financial goals.

There isn’t a right-or-wrong answer.

Both options have pros and cons, and it’s important to do what’s best for you.

It’s a common thing to be driving around in cars that you couldn’t afford to own outright.

That’s not a problem, but if doing this will get in the way of your financial goals, don’t succumb to social norms.

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