If you are like many Americans, you have probably had the “buy vs. lease” debate in your head many times. When it comes to your automotive needs, knowing when to buy and when to lease can be a tricky proposition. Each offers a distinct set of benefits and its own unique drawbacks. I have done both many times, and I couldn’t say with certainty that one is better than the other. However, I have gained some knowledge about the subject in that time, and I’d like to share a few tips with you. Here are five questions you should be asking both yourself and others when you are deciding whether to buy vs. lease.
1. What is the Intended Use?
A big portion of the debate boils down to intended use. What I mean is that the way you are going to drive your car – and, maybe most importantly, who or what else is going to be riding in your car – play a big factor in determining your choice in the “buy vs. lease: debate. Most leases have a wear and tear provision, meaning that you will be paying extra for just about every stain, spill, dent, and scratch, in both interior and exterior, beyond the expected wear and tear. If you have kids and pets, or if you are a klutz or a hard driver yourself, leasing may not be a very attractive option.
2. What Kind of Down Payment Can You Afford?
If you have the money saved up for a substantial down payment, buying will be a good route to go – the higher the down payment, the lower your monthly payments, and the more car you can afford. If you do not have a large down payment squirreled away, however, you might consider leasing.
Leasing does not typically require a large down payment, and monthly payments are generally lower (see below), so many people choose leasing to help keep them in a better financial shape.
You may decide that you are one of these people.
3. What Are Your Desired Monthly Payments?
A basic truth in the “buy vs. lease” debate is that monthly lease payments are lower than monthly payments for a purchase. This means that someone looking to lease can afford to drive a nicer car than they would be able to purchase for the same monthly payment. Many people find this fact attractive and decide to lease. But again, when it comes to intended use, leasing has limitations that owning does not, so it’s important to keep all these factors in mind.
4. How Much Insurance Can You Afford?
Car insurance can be a headache for many drivers, and here buying has the advantage – insurance is lower for a vehicle you own than for one you lease. On the other hand, the reason the insurance is lower is because you assume all liability for the vehicle, whereas with a lease you will be returning the vehicle to the dealer at the end of the lease period, no matter what happens.
5. What About the Option to Upgrade?
One of the unfortunate facts about cars is that their value depreciates over time. As a car owner, you will no doubt be aware that your car is worth less as the years go on. When it comes time to upgrade to a new vehicle, your old car probably won’t be worth as much as you wish. This concern is limited when it comes to leasing, as the vehicle’s depreciating value generally falls to the dealer. Since a lease period is fairly short, you have the option to upgrade much sooner and at lower cost to you.