Should You Buy or Lease Your Next Car?

This is a common question for many in the market for a new car. For those with older cars facing repair bills, the thought of having a new car under warranty is attractive. Over the long run, though, buying your vehicle and driving it for eight to 10 years, or more, will be the least expensive route. No doubt, leasing a vehicle has its perks. With most leases lasting 36 months or less, leasing means you will drive a new car with the most current safety features and technical gadgets. More importantly, the car will likely be within its factory warranty for the duration of the lease. That doesn’t mean there won’t be costs – you will continue to pay for maintenance as well as the general costs associated with owning a vehicle – but you can usually expect the warranty to cover repairs. Finally, a monthly lease payment will be less than a monthly loan payment if the car is purchased and financed.

Leasing does have its drawbacks. First and foremost, leases limit mileage over the course of the lease period. Leases commonly cap miles at 12,000 per year, although some leases may be more and some less. It is critical to make sure your driving habits fit within the mileage limit before leasing, as each excess mile will be billed at the end of the lease. Most leases will also have a large payment due at signing. This payment can be thousands of dollars. In addition, the lease will allow for normal wear and tear on a vehicle, but anything above that will result in additional fees. Finally, leasing your vehicle means you will always have a car payment.

Of course, buying your next vehicle has advantages, too. As mentioned before, purchasing is the least expensive option over longer periods. This alone is the reason most people buy their vehicles. In addition, owning your car removes restrictions on the miles you put on it and the wear and tear it receives. You can do with the car what you wish.

There are some disadvantages to owning your vehicle as well. Upon purchase, you will have a larger cash outlay. You will need a down payment to avoid being upside down on a loan, and depending on the size of your down payment, the loan payments will still be higher than lease payments. In addition, when the factory warranty ends, you are on the hook for repair costs. Depending on the car and its issues, these can be costly.

In the end, whether to lease or buy will be a personal decision based on the advantages and disadvantages that apply to your situation.

-       Written by Juli Erhart-Graves, CFP® Worley Erhart-Graves Financial Advisors