Getting out of an old car and into a new one is a big decision. If you’re like me, you spend entirely too much time researching which vehicle you should get. About six months ago, I spent about three days straight obsessing over which three-row crossover vehicle my wife and I should buy, and we still don’t even plan to purchase a vehicle for at least another six months. There are so many variables to consider, and as analytical as I am, I need to think about it for a while . . . maybe too long. Anyway, during the decision-making process, you’ll need to answer the buying versus leasing question. Here’s a list of what I consider to be the deciding factors between those two options.
But first, let me get us all on the same page. Vehicles are not “one of the worst investments you’ll ever make,” as many will tell you. They’re not an investment at all! So don’t think of them as such. Unless you’re a vintage car collector, they’re an expense, plain and simple. In the same way that you don’t choose to go on a vacation for the monetary benefits, or choose to have someone clean your house because you think it will improve your net worth, you don’t get in the seat of a vehicle thinking it’s going to help your finances.
However, you do need to weigh the costs with the benefits, so I’ll take that approach with this list of pros and cons for buying and leasing a vehicle.
Buying a Vehicle
Pros
- When you are ready to replace your vehicle one day, you’ll likely have some equity to help cover the cost of the replacement.
- If you don’t purchase cars very often, purchasing a vehicle will typically end up costing less than leasing.
- You are free to modify, upgrade, or replace parts to your heart’s content.
The biggest pro, in my opinion, is the cost. As I mentioned earlier, my wife and I will be in the market for a new vehicle soon, and we’ll probably buy because we tend to keep cars for a long time. We’ve both owned our vehicles for about 10 years, and we haven’t made a car loan payment in more than five years. Instead, we’ve been saving up for a down payment on a new vehicle, above and beyond what our trade-ins will be worth. This has given us quite a bit of flexibility with our budget, and the only costs to our current vehicles have been maintenance costs, fuel, and insurance. Notice I didn’t include depreciation as a cost because . . . it’s not a cost! We already “paid” for depreciation when we bought our vehicles. To us, any trade-in value is gravy.
Speaking of maintenance, though, let’s check out the cons of buying a vehicle.
Cons
- Maintenance costs on older vehicles can be costly.
- Monthly payments on a loan for a brand-new car are typically higher than leasing.
- Down payment requirements for purchasing a vehicle are typically larger than leasing.
- Depreciation can be higher than expected.
Maintenance costs can indeed be costly. I’d encourage you to visit consumerreports.org/cars and take a look at their brand reliability, which might help you keep maintenance costs at a minimum. They also have ratings for resale value, which can help with the depreciation issue. I would caution, however, to not purchase a vehicle with a strict expectation of how much you’ll sell it for five years from now, or how much maintenance costs will be. Only spend what you can to still allow yourself room in your budget for ongoing and unexpected expenses. When you pay off your car loan (if you used a loan, that is), start saving for a new vehicle right away so you don’t experience “lifestyle creep” by spending that former loan payment money on something else.
Leasing a Vehicle
Pros
- You’ll be driving a vehicle with the latest safety, entertainment, styling, and performance features.
- Maintenance costs are covered by the dealership.
- Expenses are predictable.
- Reselling your vehicle is a non-issue.
For someone who wants to take the hassle out of car buying (and reselling), leasing a vehicle can really lessen the time spent on those tasks. It’s also reassuring to know that if you happen to buy a lemon, maintenance costs will be covered by the dealership. Of course, that would also be the case if you purchased a new vehicle with repairs covered by a warranty, but not most used vehicles.
Cons
- Leasing isn’t building equity.
- Lease terms can be complicated and restrictive.
- You’re not buying a vehicle; you’re buying the use of a vehicle — and a relationship with a dealership.
The last item isn’t always a con. Some dealerships might be known for excellent service and staff, but just be aware that you won’t be able to go to your friendly neighborhood mechanic for ongoing service. Regarding the restrictive terms, sometimes you’re limited to a certain number of miles driven without paying a fee, and you also have to return the vehicle in a certain condition.
The biggest item to consider is the cost. When your lease is up, it’s time to lease again, which means more expenses. Unlike purchasing, your financing expenses don’t end when a loan is paid off.
Buying versus leasing: the bottom line
If cost is your primary consideration, it’s probably most beneficial to purchase a used vehicle outright, and drive it until it dies. However, if you want the to drive a new vehicle, the cheaper option of buying versus leasing really depends on how long you plan on keeping it. I like this calculator for help deciding which option is less expensive.
If lifestyle is your primary consideration (e.g., stress-free buying/selling experience, predictable expenses, experiencing the latest and greatest vehicles), it might actually make sense to lease. Remember, your vehicle is not an investment in either situation. Leasing may seem wasteful to many, but if you can afford it and the benefits are worth it to you, it may not be a bad decision.
