Deciding whether to lease or buy a new car can be a difficult decision. Both options have their advantages and disadvantages, and the best choice will depend on your individual needs and financial situation. In this guide, we’ll explore the differences between leasing and buying a new car to help you make an informed decision.
Leasing a New Car
What is Leasing?
Leasing a car involves renting it for a set period, usually 2-4 years, and paying a monthly fee for the privilege. The fee covers the depreciation of the car during that time, as well as other expenses like taxes and fees. At the end of the lease, you return the car to the dealer and can either walk away or lease a new car.
Advantages of Leasing
Lower monthly payments: Because you’re only paying for the car’s depreciation over the lease term, your monthly payments will likely be lower than if you were to buy the car outright.
No need to worry about depreciation: When you lease a car, you’re essentially renting it for a set period, which means you don’t have to worry about the car’s value dropping over time.
No trade-in hassles: When your lease term ends, you simply return the car to the dealer, so you don’t have to worry about selling or trading in the car.
Ability to drive a new car every few years: Leasing allows you to drive a new car every few years, which means you’ll always have access to the latest technology and safety features.
Disadvantages of Leasing
No equity: When you lease a car, you’re essentially renting it, which means you don’t build any equity in the car.
Mileage restrictions: Most leases come with mileage restrictions, and if you go over the limit, you’ll have to pay a per-mile fee.
Maintenance costs: You’ll be responsible for maintaining the car during the lease term, which means you’ll need to budget for things like oil changes, tire rotations, and other routine maintenance.
Fees and charges: There may be fees and charges associated with leasing, such as an acquisition fee, disposition fee, or excess wear and tear charges.
Buying a New Car
What is Buying?
Buying a car involves purchasing it outright or financing it over a set period, usually 3-7 years. Once you’ve paid off the loan, you own the car outright and can either keep it or sell it.
Advantages of Buying
Equity: When you buy a car, you’re building equity in the car, which means you’ll have something to sell or trade-in when you’re ready for a new car.
No mileage restrictions: When you buy a car, you can drive as much as you want without worrying about going over a mileage limit.
Lower long-term costs: While your monthly payments may be higher than if you were to lease, you’ll likely pay less in the long run since you’ll own the car outright after the loan term.
Ability to customize: When you buy a car, you can customize it however you want, which means you can make it uniquely yours.
Disadvantages of buying a new car
Depreciation: A new car loses value as soon as you drive it off the lot. According to Edmunds, a new car can lose up to 10% of its value in the first month alone and up to 20-30% of its value in the first year. This means that you may owe more on your car loan than the car is worth if you try to sell it early on. Especially for expensive cars.
Higher insurance costs: Since a new car is more valuable than a used car, it will typically cost more to insure. This can add up to a significant amount over time.
Higher taxes and fees: When you buy a new car, you’ll typically have to pay higher taxes and fees, including sales tax, registration fees, and other charges.
Limited options for customization: While you can customize a new car to some extent, you may be limited by the options available from the manufacturer. If you want to make major modifications to the car, it may be more difficult or expensive to do so than with a used car.
Pressure to keep the car in good condition: When you buy a new car, you may feel pressure to keep it in pristine condition, which can add stress to your daily life. This can include avoiding scratches, dents, and other damage that can decrease the car’s value.
Higher overall cost: While the monthly payments for a new car may be lower than a lease, the overall cost of buying a new car may be higher in the long run due to depreciation, insurance costs, and other expenses.
Lease or buy a new car conclusion
The decision to lease or buy a new car ultimately depends on your individual financial situation and personal preferences. Here are some general conclusions to keep in mind:
Leasing a new car may be a good option if you:
- Want lower monthly payments and can stay within the mileage limits?
- Like the idea of driving a new car every few years.
- Want to avoid the hassle of selling a car?
Buying a new car may be a good option if you:
- Want to own the car outright and don’t want to worry about mileage restrictions?
- Plan on keeping the car for a longer period of time.
- Want to customize the car to your liking?
- Are comfortable with the risks and expenses associated with owning a depreciating asset.
Buying a used car may be a good option if you:
- Want to save money compared to buying a new car?
- Are comfortable with the higher maintenance costs and potential for hidden problems.
- Want more flexibility in terms of the make and model of the car you can afford?
- Want to avoid the steep depreciation curve associated with buying a new car?
Overall, it’s important to consider your budget, driving habits, and personal preferences when making a decision about leasing or buying a new car. You should also research the specific cars you’re interested in and consider factors like reliability, safety, and resale value before making a final decision.
