In 2016, more than 4.3 million cars were on lease. This is a record high and a number that experts believe will continue to grow in the coming years. But why?
This is because vehicles, in particular trucks and SUVs, are too expensive for consumers to buy.
Not only this, in 2016, the average finance payment was $120 more than the average lease payment. For SUVs, it was $125 more and for larger pickup trucks, up to $206 more.
But, what is the difference between a lease vs finance? And, which one is best for you?
In this article, we’re going to tell you everything you need to know about leasing and financing so that you’re aware of all your buying options.
Lease Vs Finance: the Difference Between the Two
Knowing whether to lease or buy a car is challenging. Luckily, there are some key differences between the two that may sway your decision. Here they are:
If you buy a car, it is yours to keep. The car is in your name and you can eventually sell it for a newer model. You can also customize or modify it to your pleasing.
If you choose to lease a vehicle, you don’t own it. Once the lease is up, you have to return the car.
You can modify the car but you will have to remove these before the end of your lease. You have to return the car to its original state.
The costs of leasing vs buying a car are completely different.
When buying, you pay for:
- The car or down payment
When leasing, you have to cover:
- The first month’s payment
- The security deposit
- A down payment
- An acquisition fee
Assuming you’re making monthly payments towards a purchase, you will pay higher monthly loan payments than you would if you were to lease.
This is because you are paying for the ownership of the car. You’re also paying the interest on the loan and any other taxes and fees.
During a lease, you’re paying for the depreciation of the car. You’re also paying rent charges, taxes, and other fees.
When you buy a car, the car is yours. This means that you can sell or trade it for another model at any time you’d like. Also, if you sell your vehicle, you can use the money you make to pay the rest of your loan.
Ending your lease early could cost you more than sticking to your original contract. That said, if someone buys the car from the leasing company, you may not have to pay extra fees.
Returning the Vehicle
If you buy a car, you can’t return it. This means that you’ll have to sell or trade it for another model.
When leasing a car, you give back the vehicle once your lease term is over. You pay all the final fees and you can then choose whether to lease another one or not.
When you buy a car, its value lowers over time. That said, its value is yours. Once again, this means that you can sell it or trade it as you choose.
With leasing, the fact that the value of the car lowers doesn’t affect you. But, you won’t have any rights over the ownership of the vehicle.
When you own a car, you will not have to pay any extra fees if it gets scratched or damaged. That said, it does lower the retail value of the car.
Leasing a car means that you are responsible for its wellbeing. Of course, wear and tear are normal. But, if it exceeds these normal damages, then you will have to pay more at the end of your lease term.
If you want your car to run smoothly for the foreseeable future, make sure it receives regular maintenance. There are some easy repairs you can do yourself by following these tips.
The Advantages of Leasing
As you can see, there are of benefits of leasing vs buying a car.
The most significant one is that you will pay less in the long run. The monthly payments and down payment are lower. Sometimes, you don’t even have to make a down payment.
For this money, you will have the option to drive a better car. Your repair costs will also be lower because the factory warranty will cover most wear and tear.
Additionally, once your lease ends, you can choose a new model without having to worry about trade-ins. Last but not least, the sales tax is lower on a lease.
The Disadvantages of Leasing
While leasing has its advantages, it also comes with its own unique downsides.
When leasing a car, you don’t own the car. The company you lease with will most likely limit your mileage. While you can buy extra, most companies limit mileage to 12,000 miles per year.
Also, the long-term costs of leasing are more than if you buy a car and keep it for years. And, be careful, leasing companies will find any way to charge you higher wear and tear fees. That’s not to mention the charges you’ll incur if you try and end your contract early.
You also have the option to end your lease early and the lease terms are written in plain English, unlike with many other companies.
The Advantages of Buying
If you choose to buy a car, the biggest advantage is that the car is yours. You own it and can do with it as you please.
Once you have paid for the car, you no longer have to make any more monthly payments.
Additionally, there is no mileage cap. You can drive as much as you want. Over time, if you decide you want to get a new car, you can sell or trade in your current one.
You can also modify the car to your heart’s content. This means you can give it a paint job, tint the windows, and change the interior if you choose to.
The Disadvantages of Buying
If you choose to buy a car, your down payments will be higher than with leasing. You should also pay a larger down payment so that you don’t end up owing more than the car is worth.
Once the warranty on the vehicle expires, it’s your responsibility to maintain it. You also have to pay for any repairs. Luckily, there are some preventative car maintenance services that are affordable and reliable.
You will also have more cash tied up in your car. And, as we all know, a car isn’t an investment that is going to make you money. Its value will only depreciate over time.
Considerations You Should Make
How Long Do You Need the Car For?
If you want to drive your car for one or two years, leasing is your best bet. But, remember to get lease terms that suit your needs. If you try and get out of a contract early, it could cost you a small fortune.
If you want to have a car that you can keep for the next 5 to 10 years or more, you’d be better off buying.
Do you Need the Car for Business or Pleasure?
If you drive a car for pleasure, the final costs are yours to cover. That said, if you’re leasing for business, a part of the costs are tax deductible.
There are now guides that allow you to calculate the amount of money that is tax deductible on a car lease.
What Are the Risks to the Car?
The wear and tear fees on a car lease can be high. If you have kids, pets, or are prone to scratches and bumps, a lease may not be your best option. In this case, we suggest you buy.
How Much Do You Drive?
As mentioned above, when leasing a car, you will have a mileage cap. If you go over the 10 to 15,000 miles threshold per year, you may have to pay for each extra mile.
You can also buy extra miles upfront if you believe you’ll be driving more than the mileage cap outlined in your agreement.
By buying your car, you can drive from one side of the country to the other without worrying about your mileage.
Do You Have Any Savings?
If you don’t have any savings for a down payment, buying may not be an option. With a lease, you may be able to avoid the down payment altogether. You’ll also pay fewer sales tax.
What Is Your Monthly Cashflow?
Leasing vs buying a car means your monthly payments will be lower. That said, when financing, each payment will go towards you having ownership of the vehicle.
By the end of your contract, the vehicle will be yours. If you lease, the only option you have is to:
- Buy it at the end of your contract
- Lease the same vehicle again
- Lease another vehicle
Read Up on Your Chosen Car Model
So now that you know the difference between a lease vs finance, it’s time to choose a car. With both car buying options, you’ll have a variety of choices about which vehicle you drive.
To make the best choice, do some research. Aside from learning about your vehicle, you’ll know exactly what to do if you’re faced with unexpected repairs.
To find out more about some of the most popular brands of cars on the market, visit our website today.