Is it better to lease or own a car?
- According to analysis from Edmunds.com, millennials are more likely to lease a car than older generations, who prefer to buy.
- The US Department of Transportation reports that as of 2017, each American household had an average of 1.8 vehicles.
- In 2018, a record 7 million Americans were behind on paying their auto loans.
- It is estimated that a new car’s value will drop by 20% the moment it is driven off the car sales lot.
If you’re looking for a car with lower monthly payments, less financial responsibility for maintenance, and an overall shorter commitment, leasing is the way to go.
Standard leases are 3-year contracts that provide more flexibility as life develops. For example, if you need a bigger car because your family is expanding, it is much easier to upgrade your current vehicle without the hassle of being locked into a loan and the larger down-payment that buying a car necessitates. Additionally, if your occupation requires impressing clientele, an upgrade to the newest luxury vehicle is easier with a lease and could even produce a tax write-off.
Leasing provides you with a new car that has little-to-no maintenance in its most uncomplicated years. There is less worry about paying for unexpected repairs, as these would fall to the manufacturer and are likely under warranty. Many automobile companies, like BMW and Volvo, also include free scheduled maintenance, saving the cost of upkeep like oil changes and tire rotations.
With a lease, there is also an option to purchase the vehicle at the end of the contract. This process is similar to buying a car; auto loans are available for purchasing post-lease. This option is best if there is more wear on the vehicle than the lessor finds acceptable, or if the mileage is over the lease limit. However, if you decide that you are ready for a new car, you can simply drop off the vehicle to the dealership and choose another. These choices allow you to tailor your vehicle to your evolving needs, rather than make a long-term investment that depreciates over time.
Owning a car is a better financial choice than leasing, in most circumstances. The lower monthly lease payments that many point to as being the better deal when comparing the two options often come with upfront fees and high end-of-lease costs. One’s credit score and particular down-payment amount also come into play when determining that monthly payment amount. Owning means that your payments build equity, and you actually have something more than just another payment at the end of the contract period.
Up-front leasing costs can include an acquisition fee, security deposit, down payment, and assorted other fees, such as registration and tax. The lease contract is usually pretty strict about the details. There will be a fee for early termination, and at the end of a lease contract, you’ll pay a hefty sum per mile for going over the agreed upon mileage. Then there’s the often highly subjective category of excess wear and tear fees to contend with--not to mention a refurbishing or detailing fee to pay.
When buying a car, you have so much more freedom and flexibility. Drive it as far as you want to at no extra charge. Sell the vehicle or trade it in for another if you would like to get out of the deal early. That’s one of the great advantages of building equity with every payment. Leasing may seem less costly initially, but it does tend to cost more over the long-term, especially when factoring in the advantage of payments eventually ending.