You need a new car because the old one just isn’t working for you right now. You could purchase that car with some money down and take on 5 more years of payments potentially. You could also decide to lease your new car for a potentially lower payment over a shorter amount of time. Is it smarter right now to lease a car? Or would it be smarter to just purchase the car outright?
Leasing Is Actually More About Personal Preference
The decision to purchase a car is a long-term financial decision. Because your car depreciates immediately upon driving it off the dealer’s lot, it takes time for your equity in that vehicle to develop. Though some vehicles retain more value than others, there’s a good chance you’ll be driving that newly purchased vehicle 5 years from now.
On the other hand, a leased vehicle allows people to drive newer vehicles more often. Most leases are 24 months or 36 months at the maximum and most lease payments are less than loan payments. This means you can generally drive a better vehicle on a lease! Many leases offer options to purchase the vehicle after the leasing period, but with large balloon payments and other restrictions, many just choose to repeat the process and get a new lease.
Buying Gives You More Flexibility In Use
The one problem with a lease is that you’re restricted in the usage of your vehicle. Technically you’re not, of course, but if you have a 2 year lease that allows you to drive 15,000 total miles and you drive 20,000 miles instead, you’ll be paying mileage overages on the extra mileage. At just $0.20 per extra mile, the overage in this example would be an extra $1,000 you’d owe at the end of your leasing period.
When you purchase a vehicle, there are no usage restrictions on it. You can use it for business purposes, drive it as much you like, and even install upgrades to it if you wish. As long as you keep faithfully making your car payments every month and have your vehicle appropriately insured based on the wishes of the lien holder – that’s the bank – you’re in good shape.
If you do a lot of driving or have young kids in your vehicle on a regular basis, you may wish to consider buying your next vehicle. If you can follow the leasing restrictions without an issue, then leasing may be more appropriate.
What About Car Insurance?
This is where the final decision is usually made because a leased vehicle generally has a higher overall insurance cost than a purchased vehicle. That’s because a leased vehicle requires some form of gap insurance, which means the insurance company will cover the depreciation gap between the vehicle’s cost now and what a new vehicle would cost. Purchased vehicles can also access these policies, which can be a good thing to have in case something unforeseen happens.
With purchased vehicles, however, this gap insurance isn’t a requirement and many don’t carry it to save on costs. The bottom line is this: if you’re more worried about the kind of vehicle you drive and you always want to be driving something nice, consider a lease. If you’re more concerned with cost, value, and developing an asset, then purchasing a vehicle may be the better choice.