Should you buy or should you lease? Ask 100 people, and you’ll likely find a split vote. There are some people who would never lease or never buy, and they’ll have plenty of so-called facts to back up their decision. In reality, one isn’t better than the other—it just depends on what works for you. Most people are more familiar with buying or financing a car rather than leasing a car, but that doesn’t mean ownership is the “best” route.
If leasing is new for you, you want to make sure you have all the correct information. In some cases, it can help a person save money. It’s also an easy way to “test out” a car or guarantees that you’ll be driving a new car every couple of years. However, it definitely comes with limitations. What are the main differences between buying and leasing?
- Credit matters
You’ll need moderately good credit whether you buy or lease (unless of course you’re paying the full cash amount). However, in some cases you might be able to lease easier than you can finance if your credit is on the fence. It all depends on the lender, and you’ll want to shop around no matter which route you go. Both financing and leasing involve someone trusting you to keep up your end of the bargain. A credit score is one of the most common ways to gauge this—fair or not.
- Who actually owns the car?
With both financing and leasing, you don’t actually own the car. However, financing is taking you down a path to eventual ownership. Until you make that last payment, the lender (often a bank) is the legal owner. They hold the title. If you lease a vehicle, the lessor is the owner. This might be a dealership or bank. However, usually when someone leases they will never own the car. The monthly payments aren’t towards ownership, but rather a payment in exchange for being able to drive the car a certain number of miles per month.
- The mileage dilemma
If you have long commutes, love road trips, or otherwise have to drive a lot, a leased vehicle might not be for you. All leases come with mileage limits. The fines vary if you go over the miles, and usually include a per-mile fee. There are high-mile leases available, and those are suitable for some people. However, if keeping within your miles will cause you stress and not allow you to enjoy your leased vehicle, you might want to consider ownership.
Many people don’t know how many miles they drive per year. There are average estimates, but you’ll want to know your personal average before deciding if leasing is right for you. Track your miles for at least one month to figure out your personal average. Some people can reduce their miles driven, such as via carpooling to work, but that’s not the right fit for everyone.
- Consider the upside-down scenario
Just like you can be upside down on your mortgage, the same can be true of a car. What happens if you decide to finance a vehicle but then want to sell when you still have payments due? That’s fine if you can break even or even make a small profit, but it’s not uncommon to end up making payments on a car that’s already sold. By design, cars depreciate in value the majority of the time. If a car is destined to be a classic, that will usually take several years if not decades.
There’s no such worry if you lease a vehicle. You get to enjoy the car for the length of your lease, and if you completely fall in love you may be able to extend your lease or even switch to a finance plan. This is one of the major draws for those who love to lease cars. There’s no worry about selling it, no worrying about value depreciation, and you don’t feel “stuck” with a vehicle.
- Are you the type of person who loves to get a new ride?
When you lease a vehicle, you’re never in it for long (unless you want to be). It’s the ultimate arrangement for those who are fickle. You get to drive a brand-new car, and sometimes a luxury vehicle that you wouldn’t be able to comfortably afford if it was financed. In a few months, you can simply “trade up” for another lease. You can also simply stop leasing once your lease is up.
Whether you like to try out new vehicles or just can’t get enough of that new car smell, leasing a vehicle is one of the easiest ways to always have a newer car. When you own a vehicle, it’s not that simple. It can be a bit of a hassle to sell a vehicle or trade it in, and you’re always at risk of being upside down when you do so.
Choosing between buying or leasing means considering a number of factors. Two of the most important are knowing how many miles you drive on average and your personal approach to driving a vehicle. If you haven’t leased yet and you drive a reasonable number of miles, it might be time to change up how you approach choosing your vehicle.
