In the market for a new vehicle? You have a couple of options:
- You could lease a car — paying the dealership to use it for a specified period of time.
- Or, you could buy the car.
While some buyers can pay for a car all at once, most choose to finance it by taking out a loan and paying it back in monthly installments (usually with interest).
If you’re primarily concerned about cost, buying is usually the smarter choice. But leases make up a growing number of auto sales — almost 25 percent in the second quarter of last year, according to Forbes. And buyers who sign leases aren’t always getting a bad deal. In fact, sometimes they’re getting a better one.
So, should you buy or lease a car? Let’s take a look.
Buying: pros and cons
Buying a car has some obvious advantages. After you’ve paid it off, you can sell the car or continue to use it without making additional payments. On the other hand, you might be saddled with costly repair bills once your warranty expires. And your vehicle’s resale value can be hard to predict.
Generally speaking, buying is cheaper if:
- You tend to use and abuse your car. Leases involve pricey mileage maximums, so the more you drive, the cheaper it is to buy rather than lease. Buying is also cheaper if you tend to be lax about maintenance since excessive wear and tear will cost you at the end of a lease.
- You need to be flexible. Not sure how long you’ll need a car? Don’t lease. If you can’t find someone to swap your lease, getting out early can be expensive. Buying a cheaper used car is probably your best bet.
- You don’t mind keeping your car for a while. If you’re going to upgrade your wheels every few years, leasing may be more economical. But, if you’re happy driving a car for a longer while, buying pays off.
In short, if you intend to keep the car for a long period of time and can afford the upfront costs, buying will save you money in the long run.
Leasing: pros and cons
There are benefits to leasing a vehicle. Leases often entail lower down and monthly payments (which is good if you’re worried about short-term costs). And if you choose a 3-year term, most of your car’s repairs will be covered by your warranty.
Still, you might want to lease if:
- You don’t drive very much. Most lease agreements limit drivers to 10,000 to 15,000 miles per year. Go over and it’ll cost you when you turn in the car (usually about 15 cents per mile).
- You like to drive newer cars. Leasing allows you to trade in your car every few years, which means you can upgrade to the latest styles and technology. If you value the latest new-car innovations, go with a lease.
- You need more cash in your pocket. Whether you can drive the car for free in 5 years may not matter if you can’t afford to put in the money upfront. Leases, on the other hand, can often be flexible. You might, for instance, be able to work out a lower down payment with higher monthly payments or a longer lease period that spreads out the monthly payments.
Just be sure you’ve thoroughly read your lease contract before you sign. Leases are notorious for hidden costs, so if you don’t understand a particular charge, ask!
Buy or lease: the bottom line
In the end, deciding whether to buy or lease a car depends largely on your lifestyle and habits. Buying a car and driving it as long as possible is usually the cheapest option, but that may not be realistic for you. Do the math based on your actual behavior and make your decision that way. Whichever you choose, you’ll save the most money if you opt for a car that holds its value.
And, of course, if you’re looking to insure that new car of yours, Esurance can help. Get a car insurance quote.
Today’s post comes from our friends at NerdWallet, who deliver financial tips and info to consumers in a clear, complete, and unbiased way.