Leasing a Car vs. Buying a Car
There are pros and cons to car leasing. On one hand, you don’t have the stress of a long-term commitment and you get a brand new vehicle every few years, but at the same time, you have to watch your mileage and you probably aren’t going to be able to just walk away from the lease before it’s completed. If you’re on the fence about leasing a car, here are some key differences between leasing and buying for you to consider:
Leasing
- Ownership – You don’t own the vehicle unless you buy it at the end of the lease.
- Up-front costs – These can include the first month’s payment, refundable security deposit, acquisition fee, license, and registration.
- Monthly payment – Generally, the monthly payment is lower and more affordable because you’re only paying the car’s depreciation, interest charges, taxes and fees. You can lower it even further with a down payment, but doing so only isn’t going to lower the interest charges like a loan.
- Mileage – Leases come with a mileage limit you need to stick to. If you go over the limit, you have to pay for each additional mile, which can add up. It’s usually 25 cents for each extra mile over the limit.
- End of term – Paying off the lease early could come with early termination fees. But if you wait until the lease is up, you have the option to walk away, lease again, or buy the vehicle.
- Excessive wear and tear – You’re responsible for the upkeep of the leased car. If at the end of the term, it has excessive wear and tear, the leasing company could charge you.
Buying
- Ownership – You own the vehicle and can do what you want with it.
- Up-front costs – These can include a down payment, taxes, and registration fees.
- Monthly payment – The monthly payment is generally higher because you’re paying for the entire car plus interest, taxes, and other fees. You can lower the monthly payment by making a down payment, which could also lower the time the vehicle is worth less than the loan balance.
- Mileage – There are no mileage restrictions when you buy a car, but the more miles you drive, the lower it’s resale value may be.
- End of term – At the end of the auto loan term, you own the vehicle and can do what you want with it.
- Excessive wear and tear – Unless you plan on trading it in, excessive wear and tear can be handled and fixed on your own terms.