So you've decided to get a new car. Picking out the car you want can be difficult with the number of options in the marketplace. Unfortunately, it won't be the only difficult decision you have to make. You'll have to decide if you want to own this car or just use it. This decision can have major financial consequences. Whether you should lease or buy a car will depend on your individual situation.
Leasing a Car
When you lease a car, you only use the vehicle for the length of the lease. You don't pay for the entire car since you don't have an ownership interest. You only pay a portion of the car's total cost for using it.
Your payment is made up of a depreciation charge and a finance charge. The car depreciates over time. You must pay the leasing company the amount of depreciation since the car will be worth less at the end of the lease. The finance charge is for using the car since it's owned by the leasing company and not by you.
There are many benefits to leasing a car instead of buying one. Some examples include:
- You get to drive a new car every few years
- Lower monthly payments
- Lower upfront costs
- No expensive repairs since the manufacturer's warranty usually covers the lease term
There are also some disadvantages to leasing a car rather than buying one. Some examples include:
- No ownership interest in the car
- Mileage restrictions in the lease (must pay fee for going over)
- Fees for damages to the car, like excessive dings
- Can't modify your car
- More expensive in the long run to buy the car at the end of the lease instead of just buying it outright
Buying a Car
When you buy a car, you gain ownership of the vehicle. You have to pay the entire cost of the car since the dealership won't be getting the car back.
There are benefits to buying a car instead of just leasing one. Some examples include:
- You own the car when it's completely paid off
- There's no mileage restrictions
- You can customize the car any way you want
- You can drive the car for a very long time without having to get a new vehicle
Unfortunately, there are disadvantages to buying a car. Some examples include:
- Higher monthly payments
- Higher upfront costs
- Must make repairs on the car after the warranty is up
- Don't get the satisfaction of driving the latest cars every few years
Should I Lease or Buy?
Your particular situation will decide whether you should lease or buy. There's no right answer for every situation. You might consider leasing the car if:
- You can't get a large loan or can't afford the higher monthly payments
- You don't want to pay for expensive repairs
- You really enjoy getting to drive a new car every few years
- You don't drive an excessive amount of miles every year
- You take care of your cars and keep them in great shape
You might consider buying the car if:
- You plan on driving this vehicle for many years after it's paid off
- You can afford the higher upfront and monthly payments
- You drive many miles every year
- You don't want to stress about every scratch or ding that occurs
Questions for Your Attorney
- Should I have an attorney look over the lease or purchase agreement before I sign?
- Can I back out of a lease or purchase agreement after I sign?
- What do I do if I believe the dealership lied to me before I signed an agreement?