Many people would rather purchase their own cars and won't even consider leasing a car. Their reasoning is usually along the lines of - "Why would I rent when I could buy?" At first glance, it's a sensible argument, so it's no wonder many folks share the same idea.
But let's give it a bit more thought. Cars -- and all other vehicles, for that matter -- are more like liabilities than assets. They depreciate instead of appreciate in value over time. Maintenance also costs more as the years go by. Thus, buying a vehicle isn't always the best option. The right choice always depends on the buyer's circumstances.
If you're trying to decide between leasing or buying a car, here are some pros and cons for each as reference:
Pros of buying
- It's your own car so you can change anything you with it. If you want to pimp your ride, no one's stopping you!
- You can sell it at any time you want for any reason. You're not tied down with a contract that says you have to own the car for a minimum number of months/years.
- There's no limitation on the number of miles you can put on it. You can use your car as often as you wish and take it wherever you want without worrying about mileage.
- If you don't care about having to drive the latest model all the time, you'll save more money paying towards your own car than towards different leased cars.
Cons of buying
- You have to shell out a large down payment to keep your monthly payments lower, especially for the latest models. Also, the monthly amortization for a car loan is typically bigger than a lease fee.
- Instead of investing your hard-earned money, you're putting it towards a property that doesn't earn for you (unlike real estate, stocks, and other kinds of potential earning investments).
- You have to take care of the repairs and other maintenance needs of your car. After the warranty, the expenses will all come out of your pocket.
- Once you decide to sell or trade in the car, you have to do the whole process yourself, unless you're willing to pay someone else to take on this task.
Now that we've covered buying, let's move on to the next option, car leasing:
Pros of leasing
- You pay much lower down payment and monthly payments. The extra money can be used for other purchases or investments.
- You can choose to drive newer models for less, and you can also change models more frequently. No one else has to know that the car you're driving is leased.
- A car lease doesn't tie you down to a long-term financial commitment. This is good news for you if you're not planning to stay in one place for a long time.
- When the lease contract ends, you just return the car to the leasing company. It's that simple and easy!
Cons of leasing
- You have to watch the mileage you put in the car. Most leasing companies specify a mileage limit between 12,000 and 18,000 miles per year.
- You also have to be extra careful when you use the car. You will be charged for damages beyond the usual wear and tear.
- Terminating a lease contract before it officially ends will result in additional fees that you have to settle before starting on a different contract.
- The car isn't yours, so you can't customize it, and after the contract ends, you have no equity in the car at all.
But what if you could have the best of both worlds - car ownership and lower payments with little money down?
Remember, there's no such thing as the right option for everyone. What matters is that you choose the right option for you. Download our free Car Buying e-Book to learn more about buying or leasing a new or used vehicle.