Pros and Cons of Car Buying Versus Leasing
Nearly every household in the US has access to a car or light truck. But that doesn’t mean every adult owns their car. A minority of drivers leasing over buying. After all, ownership is a big financial responsibility. The average car price is more than $38,000, and once you sign off on it you’re on the hook for the whole amount, even if your circumstances change.
Buying and leasing a car are both significant financial choices for drivers. If you’re trying to choose between the two, your choice will boil down to a few different factors that involve both your short- and long-term financial situation, as well as the driving needs of you and your family.
Is Car Ownership Necessary?
The main distinction between purchasing a car and leasing it is that once you buy a car you have complete ownership of it. This gives you more freedom – over what insurance to have, where to take it, and whether to sell it. When people lease a car they only have temporary ownership, but that doesn’t mean full ownership is for everyone. Your circumstances may make leasing a better option, and it’s always smart to take your time and do your homework before making such an important investment.
Lease Agreements Call Some of the Shots
Before leasing a car, be sure to familiarize yourself with the conditions in the lease agreement first. Your lease agreement will specify details like who has to pay for maintenance and repairs during the term of your lease. Typically, a lease agreement will also require you to cover the cost of excess wear and tear. That means when the lease is up, the dealer could charge you to for the cost of making certain repairs. Before signing any leasing contract, you still have the power to negotiate the terms or avoid an unfair agreement.
Buying Is Pricier at First
Understandably, most car shoppers are very focused on the monthly payments they’ll have to make to have access to a set of wheels. While it’s much more common to buy than lease, some consumers don’t because they can’t afford the higher monthly costs. Here are three other factors to consider before deciding which option makes the most sense for your situation:
- Consider the full cost of your choice, including registration fees and taxes. The second-quarter average monthly payment of a new car in 2020 was $568, according to Credit Karma. That’s higher than the $467 people paid each month to lease their vehicle.
- Will you still be able to make the payments three years from now? It’s important to consider your future financial standing, as well as your current ability to make payments.
- Low credit scorescan make car ownership less accessible for people with fewer funds. A lower score usually means you’ll have to pay higher interest rates on your auto loan.
Leasing a Shorter-Term Solution
When you lease a car, you make a financing agreement in which you pay to drive the car but typically aren’t planning to own it at any point in the future. A small percentage of households lease cars, but there are numerous reasons to opt for this temporary status. For instance, leasing can be more convenient for people whose job requires them to travel or relocate often. Here are some other potential benefits:
- The cars are newer.
- With lower monthly payments, you might be able to drive a more expensive vehicle.
- Less money is usually spent on maintenance and repairs.
- Because they’re newer, they might be more reliable.
- You won’t ever have to deal with selling it.
Car Ownership Is an Investment
Most people want control over their possessions. Just like with homeownership, car ownership is an investment. All those monthly payments will eventually pay off the car in full. And when you are the owner, your car is one of your financial assets, just like a home or condo you own. You can choose to sell it or trade it in to lower the cost of your next vehicle.
Auto Insurance Needed for Both
As you contemplate how much your choice will cost you, don’t forget to factor in the cost of insurance. Auto insurance is required whether you lease or own your vehicle. Be sure to ask the lender about the cost of insuring your leased car, as it may be more expensive to insure than if you bought it. The lender might require your leased car to have high insurance coverage limits or extra types of coverage that aren’t legally required if you’re the owner.
Whether you buy or lease, visit AZ Auto for more information on registering your new vehicle.