Given the high cost of new vehicles, it has become increasingly difficult for individuals to purchase cars. This has resulted in a boom in the leasing industry, helping people save money in the process. Although choosing between leasing and buying can be difficult, it ultimately boils down to one’s requirements, budget, and priorities. While buying a car helps individuals build equity, leasing offers advantages like more flexibility and lower monthly payments.
Leasing a car
When leasing a vehicle, one pays to get the right to drive it for a set period. Generally, this varies between two to four years, but longer leases are also available. Lease payments are typically less expensive than monthly loan payments on new vehicles. However, various factors, such as the sale price, lease length, expected mileage, residual value, rent charges, and other taxes and fees, determine the total amount paid. At the time of leasing, one may also need to cover the cost of title fees, licensing fees, dealer documentation fees, and prep charges in addition to a down payment.
Advantages of leasing a car
1. Lower monthly payments
Leasing typically costs less than buying a car on a monthly basis and requires a lower down payment.
2. Better access to new cars every few years
Once the lease is up, one can simply return the car and drive a new one, allowing them to have a new ride every few years. This is also a great way of staying in touch with car technology and innovation.
3. Reduced maintenance stress
Leased cars often come with a warranty that lasts three years, thereby covering the cost of any repairs or replacements, and reducing any unforeseen maintenance costs.
4. Better tax deductions
A car leased for business purposes may offer individuals better deductions than a loan.
5. No resale worries
Once the lease is up, one simply returns the car without worrying about sales. That said, end-of-lease fees may be chargeable, especially for abnormal wear and tear or additional mileage.
Disadvantages of leasing a car
1. No ownership
The biggest drawback of leasing a car is no vehicle ownership. As a result, one must adhere to contractual terms that include mileage restrictions and car modifications, among other things. Many people may find this lack of control concerning. Most leases have annual mileage restrictions, generally between 10,000 to 15,000 miles.
2. Additional fees
A leasing contract often includes fees for things like excess mileage, excessive wear and tear, acquisition, early termination, cleaning costs, etc., making leasing more expensive.
Buying a car
Buying a car instills a sense of ownership and implies that the buyer can keep it for as long as they choose. The overall cost of owning a car depends on the make and model, year of manufacture, taxes, and other factors. Those who choose financing or loans pay a slightly higher down payment and loan payment than leasing.
Benefits of buying a car
1. Total control and ownership
Buyers do not need to worry about overshooting mileage or car wear and tear requirements. Private owners can pay for repairs, maintenance, and other costs on their timeline.
Additionally, the owner has complete control over modifications to the car. Be it a new sticker to enhance its appearance or a brand new set of speakers to make drives more engaging, there are no restrictions they need to follow. When making a financed purchase, the owner can decide whether to keep the car for a long time, trade it in, sell it off, or give it away.
2. Claim tax deductions
Owners who purchase a car for business can also claim deductions from the IRS. It is crucial to maintain all documents to apply for these deductions carefully.
3. Long-term costs
Buying and holding on to a car for a long time is cheaper than leasing a car every few years.
Drawbacks of buying a car
1. Depreciation
Cars lose a significant chunk of their value in the first five years of ownership. As a result, owners are likely to get less value during resale. That said, for those who intend to keep the car as a long-term investment, this aspect should not be a cause for concern.
2. Maintenance and driving costs
Car ownership also comes with a significant driving and maintenance cost. Buyers are more likely to spend out of their pockets for some repairs, as the warranties do not cover everything and are only valid for a short time.
Choosing between buying and leasing
Deciding between buying and leasing may feel difficult, but it ultimately depends on an individual’s current needs and financial plans. They must pay attention to how much they can afford to spend on monthly payments, their driving style, and the mileage they want to extract from the car. They can finalize the type and make of the car and then break down the numbers using a lease versus buy calculator. Finally, they should ensure they shop around and negotiate for offers, deals, and discounts on buying and leasing.
