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 Twenty years ago, nearly everyone bought their new cars directly from a dealership and only those that were driving a car for business purposes were leasing their vehicles. Today, that's all changed and many individuals are now leasing a new car instead of buying.
Buy or Lease a Car?
At the one end of the spectrum there are individuals that like the idea of driving a new car every couple of years. At the other end of the spectrum are those individuals that decide to buy a car based on simple economics. If you're one of those persons that sit at the either of these two ends, you can stop reading now. The decision to buy or lease a car is an easy one.
But if you're wondering what the best decision might be for your situation, then you'll want to just keep on reading. In this article we're going to be discussing the pros and cons of buying or leasing a car. Then we're also going to introduce you to some online tools that can help you make an informed decision.
Advantages of Leasing a Car
One of the primary reasons many individuals lease their cars is the satisfaction they derive from driving a new car every couple of years, but there are some other advantages of leasing a car that are worth discussing too.
New Car Reliability
Most leased cars are returned to the dealership before the manufacturer's warranty has expired. That means most of the expensive repairs - such as installing a new transmission - never come into consideration when leasing a car. In addition, due to the mileage cap provision of a lease contract, the car usually has relatively few miles on it and is therefore considered a very reliable source of transportation.
Financial Commitments
Another big advantage of leasing a car is the lack of financial commitment to the vehicle. Most leasing agreements include a capital cost reduction payment, which is similar to a down payment for a car, but these capital cost reduction payments are relatively small, and quite affordable, in comparison to some down payments made when buying a car.
In addition, your monthly lease payment for a car is very likely to be lower than a car loan's monthly payment. That's because with a lease the monthly lease payment only has to cover the car's depreciation and a financing charge.
Taxes Deduction
Finally, the other big advantage of leasing a car is the tax deduction you might be able to take if the car is used for business purposes. The tax laws have been tightened in recent years, but in general, when the car is driven for work-related purposes the cost of operating the car is deductible from your federal income taxes.
Advantages of Buying a Car
As mentioned earlier, perhaps the biggest advantage associated with buying a car has to do with economics. We're going to discuss a couple advantages below, but most of these fundamentally revolve around economics - in the long run it's less expensive (cheaper?) to buy a car than lease one.
Car Depreciation Rates
During a car's first year of ownership the loss in market value - or depreciation in the car's value - is the greatest. In general, depreciation for a car slows as the car ages. When you are leasing (or even buying) a car every couple of years, you are paying for this high rate of early-life depreciation. If you buy a car, the longer you own the car, the lower the depreciation expense.
Owning an Asset
Another advantage of buying a car is that when the loan is paid in full, then you own the car - which is an asset. If you were to fall on hard financial times, you can always sell the car for another asset - cash / money. If you can no longer afford your monthly lease payment, then you might be faced with some pretty stiff lease termination penalties.
Lease versus Buy Decisions
Now some of you might be thinking that we've forgotten about the added maintenance expense associated with aging cars. It's true, as cars age you will start to experience a higher rate of mechanical failure. That's engineering 101. But in many cases, even an expensive repair is less expensive than continuing monthly lease payments.
You don't need to take our word for it; you can try to run through some scenarios yourself. We've got quite a few resources that you can use to work through some lease vs. buy scenarios.
Buy vs. Lease Car Calculators
If you're interested in running through some buy versus lease calculations then we've got some tools you might be interested in:
- Buy or Lease a Car Calculator - this calculator was designed specifically to allow you to make a side-by-side comparison for a buy versus lease decision.
In fact, we've got an entire section of our publication dedicated to auto loan calculators. There you'll find ten different calculators dealing strictly with automobile purchase and lease decisions.
Lease Only Decisions
If you've already decided that you want to lease a car, or if you're new to leases, then check out our articles dealing only with car leasing:
Buy Only Decisions
If you're convinced that you want to buy your next car, then we've got some calculators dedicated strictly to buy only decisions:
Car Leasing Terminology
Finally, if you've been thinking about leasing your next car, but all of the terminology has got your head spinning, then check out our car lease glossary. This article explains all of the most common terms you'll encounter when discussing a car lease with a dealership. Even if you're just looking through the local newspaper and want to better understand what the car lease advertisement is all about, this article is a must read.
About the Author - Lease vs. Buying a Car
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