If you’re in the market for a new set of wheels, you may be wondering if it’s better to lease a car or buy a car using a loan. Knowing the pluses and minuses of each will start you on the road toward the right decision for you.
As you weigh these two choices, you’ll have to think about factors such as your credit score, how much you love road trips, whether you envision upgrading to a shiny new vehicle every few years, or — dream of handing over the keys to your child one day.
Buying a Car
Buying a car can be a great choice if you plan to hold on to it for a long time, you drive a lot, and you don’t mind dealing with auto repairs. Here’s why:
Buying a car builds equity. Part of each monthly payment goes toward the principal of your auto loan until you own the car. The average car loan term is five and a half years, so you’ll have to keep your car for a while to reap the benefit of your investment.
You can drive without limits. Do you have a long commute or love road trips? The average U.S. driver age 20 to 34 drives almost 15,100 miles per year — more than the typical yearly mileage cap in a lease. If you own your own vehicle, you’re in the driver’s seat when it comes to how many miles you put on your car.
You have more flexibility. If your needs change, you can easily sell or trade in your car. For example, if you have a baby or move from the city to the mountains, you could swap your convertible for an SUV to fit your new lifestyle.
Buying a car isn’t a slam dunk either. In addition to higher monthly payments until your loan is paid off (more on that later), here’s another downside to consider:
You’ll have more maintenance down the road. The freedom of car ownership comes at a price. In fact, car maintenance and repair costs increase over time. Depending on the make and model, maintenance and repair costs for a 10-year-old car range from about $300 to more than $1,000 per year, Consumer Reports found.
Leasing a Car
Leasing a car can be an excellent option if you love low monthly payments, have excellent credit, and prefer not to have an auto mechanic at the top of your contacts list. Here’s the breakdown on leasing a car:
Leasing a car will lower your lower monthly payments. An auto lease can be easier on your monthly budget than buying a car. For example, the AutoGravity car calculator shows that a $30,000 vehicle with $6,000 down would cost about $249 per month to lease compared with $426 per month to buy.
You can always drive a new car. Do you love that new car smell? When you lease, you can stay in a new vehicle with the latest features. While most leased vehicles are new, it’s possible to lease a used car if you prefer.
You get a break on sales tax. In most states you don’t pay sales tax on the total price of a leased vehicle — only on your monthly payments.
You’ll benefit from the warranty. The typical manufacturer warranty on a new vehicle lasts three years or 36,000 miles, whichever comes first. Lease terms typically last 24 to 36 months. So, it’s unlikely that you will ever have to budget for big repairs.
This doesn’t mean that leasing a car is the best choice for everyone. First, remember that you will always have a car payment if you lease. Here are some other downsides to consider:
You need to say goodbye to long road trips. Most lease agreements cap miles at 10,000 to 15,000 per year, according to Edmunds.com. If you drive more, you could get hit with excess mileage fees of about 15 to 25 cents per mile. You might also get charged “excessive wear and tear” costs when you turn in a leased vehicle, according to Edmunds.com.
Leasing is still a big commitment. If your life circumstances change, breaking your lease early could cost you thousands of dollars unless you can trade in your lease for a new one or find someone to take over your lease. This is harder than selling a car you already own.
Weighing the pros and cons of buying vs. leasing will help ensure that you drive away from the car dealership knowing you made the decision that’s right for you.