Car Buying 101: Lease or Buy?
Has a new vehicle been on your radar, but you’re unsure if you should buy or lease? Other than a home mortgage, an acquisition of a vehicle is one of the biggest financial commitments you can make. If you were to ask your family, friends, and co-workers what option they chose when getting their new car, you’ll probably get a mixed response. Each option comes with advantages and disadvantages.
So how do you know which option is the right avenue for you? We’ve laid out some pros and cons for both leasing and purchasing your next vehicle.
Pros of Leasing a Vehicle:
- Lower monthly payments
- You will be able to enjoy the newest cars and technology every two to three years
- The car will be under warranty for the entire lease
- It’s easy to trade in the vehicle
If you’re looking to keep your monthly car payment low, a lease may be the option for you. A typical lease payment can be up to 60% lower than if you were to purchase a vehicle that requires a personal loan.
If you’re someone who likes to have the latest and greatest vehicle, you’ll be able to do so, since lease agreements normally last two to three years. Being under the lease term also ensures that your vehicle will have warranty coverage, as long as you stick to your mileage limit. Not having to worry about paying for any significant repairs provides some relief.
When your contract term is up and you’re ready for a new vehicle, it’s easy to go into the dealer and trade in your current vehicle for a new one. No extra time spent trying to sell your car.
Cons of Leasing a Vehicle:
- You don’t own the vehicle
- You will always have a car payment
- There is a mileage limit
- You have to keep up proper maintenance of the vehicle
- You may be required to purchase GAP insurance
When leasing a vehicle, you never actually own it. The leasing company holds the title, leaving you with no ownership interest in the vehicle. So when your lease is up and you go to turn it in, there will be no cash value associated with it. Your monthly payments may be lower, but you’ll always have a car payment. They will continue until you’ve paid off your loan which is the length of the lease agreement.
When signing a lease agreement, you are agreeing to all the terms including the strict mileage limits. Going over that limit, even slightly can cost you. Make sure you are aware of the excess mileage charges, which can range from 15 to more than 40 cents per mile.
You’ll also need to make sure that you are keeping up with the routine maintenance of your vehicle. The maintenance will have to be done by the leasing dealership. Make sure you keep your vehicle in the best condition possible so that you avoid the potential for extra charges for repairs when you turn it in.
When leasing a vehicle, most contracts will require that you purchase Guaranteed Asset Protection (GAP) insurance. GAP insurance protects the borrower if the car is totaled or stolen by paying the remaining different between the actual cash value of the vehicle and the balance still owed.
Pros of Purchasing a Vehicle:
- You will have ownership of your car
- You can drive as much as you’d like
- You can build up cash value for your next trade-in
- Monthly payments will end once loan is paid off
If you’re looking to own your car, keeping it for an extended period of time, and be able to do whatever you’d like with it, then buying is the path for you. You can customize it however you’d like and put as many miles on it as you see fit. Once your loan is paid off, you’ll have that extra money that went to monthly payments to stock away or spend on something else. When it’s time to upgrade your vehicle, you’ll most likely get a trade-in value that can go towards the down payment of your next vehicle.
Cons of Purchasing a Vehicle:
- It can be more expensive in the short term
- The warranty will end
- You will be responsible for selling or trading-in your vehicle
Purchasing a vehicle requires up-front costs and potentially higher monthly payments. If you are able to put down a large amount of money at the time of purchase, you could decrease your monthly loan payments. A big factor to consider is that eventually the warranty on your car will end, however, there is the option to purchase extended warranty cover for an additional price. When your warranty ends, you have the chance of unexpected repairs that may be significant in cost. Eventually, when you’ve decided that it’s time for another new car, you will be responsible for selling your current one or negotiating a trade-in value with the dealer.
As you can see, there are many benefits and disadvantages to both options. Take a moment to consider what the best route is for you before jumping in. If you decide to purchase a vehicle, let Pioneer help you with the financing.
The material provided on this website is intended for informational purposes only. Links to other web sites are provided for reference and do not constitute a referral or endorsement by Pioneer or its affiliates. Please note that such material is not updated regularly and that some of the information may not be current. It is recommended that you consult with a financial professional for assistance regarding the information contained herein.