Should You Lease or Buy a New Car?

Consumers in the market for a new car are faced with many choices.  Even if you know the make of the vehicle you are in the market for, you still need to decide everything from color to which options you will add to your car.  Moreover, the technology in new vehicles is dizzying; cars read road signs, keep you in your lane, and respond to your voice commands.  The decisions don't stop once you've settled on the vehicle; now, you have to decide how you will purchase it.  Most consumers need to finance their new car purchase; you can choose to buy the car with a car loan or lease your new vehicle.  Here, we will talk about the differences between these two options, providing pros and cons.


Pro: Cost

As the cost of new cars increases, many in the mid $30,000 range, consumers are finding price tags skyrocketing as they start adding all the nifty options. Leasing a car yields a lower monthly payment because you are not financing the total cost of the vehicle, only the difference of the price of the car as new to the car's expected residual--how much the vehicle is expected to be worth at the end of the lease, plus finance charges. Individuals can get into a better car for a lower monthly cost.

Pro: New Car Perks

Leasing a car eliminates being "upside-down" in a car loan, which may occur when owners trade a car after owning it for a few years.  Consumers may find themselves owing more than the car is worth. Leasing a car allows individuals to drive it in its best years, with new vehicles generally requiring less maintenance and replacement of consumables.

Con: Mileage Restrictions

Part of a vehicle lease is mileage caps; individuals pay to drive so many miles annually.  While you don't get any advantages if you drive fewer miles than you pay for, you will have to pay the penalty for going over contracted miles.

Con: Overall Cost

In the end, a leased car will usually cost more than purchasing it--if you choose to keep the car after the lease term.  If you lease one car after another, you'll pay payments forever without ever ultimately owning anything.


Pro: Ownership

Car buyers keep the car they have purchased; they can choose to trade that car at any time, sell it privately, or drive it until the wheels come off. Buyers are building equity as they pay off their car, and the longer they keep the car, the cheaper that car ends up being in the long run.  Buyers can modify their car at any time, as well.

Pro: Mileage

Buyers have no restrictions regarding miles driven. There will never be any penalties for driving a lot and no paying for miles that weren't driven.  Low mileage can be an advantage when selling the vehicle, as can high mileage being a disadvantage.

Con: Monthly Payments

Car buyers usually find monthly payments for a car they are buying to be higher.  Consumers can opt for longer terms, which will lower payments but may create a situation commonly referred to as "upside-down," in which the car is worth less than what is owed.

Con: Financing

Buying a vehicle requires financing a loan; unless your credit is outstanding, you'll likely have an interest rate that goes higher with declining credit scores.  Consumers may have to put a large deposit down as well.

Whether to buy or lease is a question best answered by comparing the options, knowing your driving habits and needs, and understanding your financial situation.  Everything is negotiable, so ask for what you want at the dealer.