If one is shopping for a new car, they’re probably thinking about the price, color, model, and make. However, once that decision has been made, the next big decision is whether one wants to buy the car by financing or leasing. Each option has its own set of pros and cons, and one needs to consider their financial situation and intended use of the car which can help them decide their best option.
Finance vs. leasing a car comes with the following advantages and disadvantages:
1. Advantages of financing a car
When one owns a car, they do not have to fork over thousands of dollars as a fee for damage such as paint scratches or upholstery stains, and neither do they have to worry about annual limits on the mileage they can drive. One can also sell their car anytime without incurring any penalty. What’s more, as one pays their loan, they tend to build equity in their vehicle, which could, in turn, become a down payment for possibly new wheels in the future. So, hanging on to the car long enough can result in no payment at all.
2. Drawbacks of financing a car
Buying a car means paying for its entire worth, unlike leasing, which essentially translates to less car/dollar of one’s monthly payments as compared to leasing. So, if one decided to hang on to their car for a while, repair costs once the warranty expires need to be factored in. If one wishes to sell their car for a newer model, they will also have to deal with the hassle of trading in or selling. What’s more, they will have to deal with depreciation, making buying cars a poor long-term investment.
3. Advantages of leasing a car
The biggest advantage of leasing a car is that the monthly lease payments are lesser compared to financing loan payments for the same amount of time for comparable vehicles. One can arrange for leasing a car without a down payment, and they also end up paying lesser amounts in sales taxes since they are not buying the car. Also, since warranties often cover maintenance costs and last the lease’s length, one can end up owning a pricier, more luxurious car sans any huge maintenance bills. What’s more, when the lease is up, lessors do not have the hassles of looking for a local dealer or an independent third-party dealer for taking the car – they just need to give the keys to the lessee.
4. Disadvantages of leasing a car
Loss of freedom is perhaps the biggest disadvantage of leasing a car. There are extra charges for going over mileage limits, which typically are just 12,000–15,000 miles annually. If one breaks their lease early, it will cost them extra money. Insurance could be more, and rolling leases means an endless abyss of car payments. What’s more, if one decides to keep the car at the end of the lease, they will end up paying more than if they would have decided to buy the car in the first place.