Owning a vehicle is no longer a luxury but a necessity for most people. Many of us work in places where vehicles are required to get around, especially in Litchfield County were public transportation really doesn’t exist. You will most likely need to purchase a vehicle that costs more money than you have on hand in your savings account. So, the question is, “Should I buy or lease a vehicle?”
Purchasing vehicles has been considered the norm ever since cars began rolling off the assembly lines. However, leasing a vehicle, where you only finance the depreciation of the vehicle, is become more common. Leasing was once only accessible to wealthy people or companies with generous budgets, but as vehicle costs continue to rise, leasing a vehicle can be an affordable solution for the car buyer.
If you’ve ever brought up the topic of buying vs. leasing a car amongst friends or family, you’ve probably heard comments like “It’s smart to buy a car, you’ll gain equity” or “leasing is the way to go, you’ll always have a new car, lower payment, and a warranty.” While both statements have valid points, your decision should be based on your finances and your needs. We’ve made a pro and cons list for each option, to help make the decision a little easier.
Pros to leasing a vehicle
- Typically, your lease payment will be less than if you purchased and financed a vehicle.
- You get a new car every 1 to 3 years, depending on your lease terms, with all the latest technology.
- If you own your own company, you may be able to write off your lease payments as a business expense.
- The vehicle is usually under warranty, so you don’t have to spend money on any repairs.
- You will pay less in sales tax.
Cons to leasing a car
- No matter how many monthly payments you make, at the end of the lease, you will not own the car. You must return it unless you want to pay the buyout amount, but it’s often not in your favor financially.
- You are required to keep the vehicle for the duration of the lease or face expensive fees – unless you sell it for the balance of the lease payments plus the buyout amount.
- You need to stay within the agreed upon mileage or pay a hefty price for overage.
- You will need to pay for any excessive wear and tear – this includes damage to the interior, scratches, dents, and even tires if they aren’t within what the leasing company deems normal.
- Typically, you can’t modify the vehicle. If you do, you will need to return it to the original form prior to returning it.
Pros of purchasing a car
- If you plan to keep the car for a long period of time, purchasing is a much cheaper option.
- You can drive as much as you like. There is no limit to the miles and wear and tear you put on the car. If you have a long commute, this is important.
- Financing options can be flexible. You can tailor the length of your loan, so the monthly payment fits your budget.
- Once you pay the vehicle off, you won’t have a monthly payment.
- Your monthly payments go directly to paying off the vehicle, leaving you with equity once the vehicle is paid off.
Cons of purchasing a car
- You will want to have some money saved up for a down payment before you can finance a vehicle. It’s not required, but it’s smart, otherwise, you’ll be upside down on the loan.
- You will be paying interest, and the longer the length of the loan, the more interest you will be paying.
- Once the warranty runs out, you will be responsible for any repair costs, in addition to normal tasks like oil changes, brakes, etc.
- As soon as you drive the car off the lot, it starts to depreciate. You’ll never sell it for what you paid.
- If you trade in the vehicle, you have to negotiate the trade in value as well as the price of the new car.
There are a lot of factors to consider when trying to decide whether to buy or lease a car. There is no one size fits all solution. Leasing a vehicle may make sense now while purchasing might make more sense in the future. It really depends on your needs, finances, and flexibility.
If you are wondering which option makes sense financially, use this calculator to understand your potential car buying options. If you decide you are ready to finance your next car, we make the process simple and easy. Give us a call (link to our contact page) and we’ll help you through the process.
Stephen Yonych Jr.
Assistant Vice President, Watertown Manager