Should You Buy or Lease a Vehicle?

Should You Buy or Lease a Vehicle?

Should You Buy or Lease a Vehicle?

Whether you should buy or lease a vehicle is a question only you can answer, but understanding the difference between buying and leasing can help you decide which option works best for your life.

What does buying mean?

You might think it's a stupid question, but there's more than one way of "buying" a vehicle. The most straightforward way of buying a car is when you pay for it in full using cash, a credit card, a bank transfer or a check. The whole amount is handed over to the dealer and you are then the owner of the vehicle. As the owner, you can pretty much do with it what you want.

However, you are also buying a vehicle when you take out an auto loan where the vehicle becomes yours once all the payments have been made. If it's a straight-up auto loan it won't matter to the financing company what you do with your vehicle, how you drive it, how well you maintain it, or how many miles you drive in it. All those things will effect what it is worth once you decide to sell it, of course, but you can't sell it until all outstanding payments have been made to the finance company.

So what's leasing then?

In its most basic form, leasing is effectively a long-term rental agreement. The amount per month you have to pay is based on how many miles per year you're intending to drive in it, how long the agreement is, how big a down payment you want to make, and how much it will depreciate in value over that time. Basically, you're paying to use it and you're paying the amount that it won't be worth between the time it's brand new and the time you return it to get a new vehicle. Although some lease agreements do offer you the chance to buy the vehicle if you want to at the end for its value at the end of your lease, the real idea behind a lease is to hand the vehicle back and start again with a new one.

Pros of buying

If you're buying the car, it's yours (once you don't owe anything to the finance company) so it's up to you what you do with it. Even though your car will decrease in value from the moment you drive it away from the lot, you'll always have some equity in it and that means you can sell it and raise some money if you find you need to. If you do own the vehicle yourself, if you miss a service or don't look after it, the only thing you'll be doing is reducing its value more quickly.

Cons of buying

A vehicle is a big investment even if it's a pre-owned model; even then, investment is hardly the word you should use. Vehicles lose their value from the moment you buy them, and that value is your money disappearing. Buying outright with a lump sum could leave a big hole in your savings, and that's money that could come in handy for unseen events further down the line. If you decide to sell after only two or three years, you might find yourself short more money than you would have been had you decided to lease instead.

Pros of leasing

Leasing is straightforward and it's generally a lot less expensive than buying. You put down a down payment, you pay agreed monthly payments that don't change over the term of the agreement, and then you hand the vehicle back at the end and do as you like afterwards. This means you're always likely going to be covered by the manufacturer warranty, so you won't have to worry about paying to fix problems. You'll also be able to look forward to getting another vehicle relatively soon so you always keep up with the latest technology and features. You won't have to worry about depreciation either, which is a massive reason for choosing to lease.

Cons of leasing

When you lease a car, you don't own the vehicle and so you're at the mercy of what the finance company wants you to do with it while you have it. You'll have to stay under a certain mileage requirement and will have to treat the interior very well; if you don't, you'll have to pay a lump sum penalty when you're ready to hand it back in. You're also required to maintain it regularly, or else you'll face additional penalties. This scenario could be tough for people with kids, pets, or a tendency to skip the oil changes.