If you are the type of person who wants to be in total control of your assets and finances, then buying is best for you. Owning your own vehicle does come with a sense of pride. For me, personally, I prefer to buy and own my assets outright. It’s a great feeling to have.
This topic comes up more often than you may think:
Do I buy a car, or should I lease?
These are two major finance choices and trying to figure out what works best for you can be tough.
On one hand, buying involves higher monthly costs, but you own the asset and it is yours in the end.
On the other hand, a lease can have a lower monthly payment and lets you drive a more expensive vehicle that you couldn’t normally afford to buy.
That is the allure of leasing, but be careful: you can easily get caught up in a loop of nonstop renting.
What is the difference between buying and leasing?
Buying is straightforward. You borrow money from a bank, credit union, or other lending institution and make monthly payments for some number of years. Part of your monthly payment goes towards interest (the cost of borrowing) and the rest goes towards your principal. As you repay the principal, you build equity until—by the end of the loan—the car is all yours.
With a lease, buyers make a monthly payment to drive a new car for a set term. That payment is often less than the monthly cost of financing a new vehicle, but buyers must return the car at the end of the lease term. It is never yours to keep and you don’t own it.
Now that you understand the difference between the two, you must decide which is best for you and your financial situation. Some benefits of leasing a car, for example, are the lower monthly payments, little or no money down options, and manufacture warranties.
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Let me break this down further:
If you are trying to keep your monthly spending in check, leasing a car tends to offer the perk of making lower payments on a new car than if you were buying it.
You also may be able to drive off the lot with little or no money down (many dealerships offer this option to entice consumers). Leasing vehicles will most likely have great warranty protection which usually lasts the typical length of a lease. So, no stress of having to repair your vehicle.
Some drawbacks of leasing a car are mileage restrictions, additional costs, and most importantly you won’t own it at the end of the term.
Let’s dig deeper.
Although leasing may make it financially easier to put you in that brand new car you’ve been dreaming about, you won’t be fully in control. Most leases come with mileage restrictions typically ranging between 10,000 & 15,000 miles per year. If you exceed those miles, you will be hit with a premium.
So, if you are planning long weekend driving trips, leasing may not be for you. There is also the possibility of getting hit with any additional wear-and-tear costs like a chip in the windshield. For me, the worst drawback of leasing is, you won’t own it at the end. You basically rented a vehicle and although you have the option of a lease buyout, your monthly payments will continue, and you will never be without payments and never fully own the car until it’s paid off.
So, who is leasing best for?
Leasing is the right option for you if you want to get behind the wheel of a new vehicle without a hefty financial commitment upfront. Unlike financing a vehicle through an auto loan, leasing will ease the monthly cost to a more manageable number. It also allows you to drive a more luxurious vehicle that you many not be able to otherwise afford.
Now that we know the benefits and drawbacks with leasing, what about buying?
Who benefits from buying? Some benefits include no mileage limits, no wear-and-tear charges, and the ability to sell or trade it in. When you buy a car, you don’t have the worry of going over a certain number of miles. It’s yours, you can drive as far as you like and don’t have to worry about extra fees.
You also don’t have to worry about any fees for wear-and-tear.
What you may feel is normal, a dealership may consider it excessive. Because the car is yours, you won’t have to worry about what to do when you pay off your loan. You can simply keep it, sell it, or trade it in for another vehicle. Just keep in mind, you will want to take care of it if you do plan to trade it in or sell it.
Some drawbacks of buying a car include:
Higher monthly payments, a bigger down payment, and long-term maintenance costs. So if you choose to buy, you will probably be spending more each month. Since most auto loans are on average 5 years, and depending on the sticker price, your payments could end up being quite hefty.
If you put a hefty deposit down, that will reduce the cost of your monthly payments and perhaps the term of the loan but put a dent into your savings.
Although brand new cars come with decent warranties, they usually don’t last the entire term of the loan. Most warranties are for 3 years or 36,000 miles which can happen very quickly depending on your daily commute. Just remember you are the owner and therefore responsible for all the maintenance.
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So, who should buy a car?
If you are the type of person who wants to be in total control of your assets and finances, then buying is best for you. Owning your own vehicle does come with a sense of pride. For me, personally, I prefer to buy and own my assets outright. It’s a great feeling to have.
Whatever path you choose to take it’s important to remember a few things:
1. What works for your friend or coworker won’t necessarily work for you.
2. Your credit score will determine what interest rate and amount you qualify for.
3. You need to look at your personal finances and assess what you can afford to pay.
Also, what kind of driver are you?
Do you work close to home, do you like to take weekend trips and drive long distances? Do you live in a city where everything is close by and within walking distance? Consider all these before making the decision to buy or lease a car.
