Buying vs. Leasing
Buying vs. Leasing a Car
Understanding the differences between buying and leasing is key to making an informed vehicle purchasing decision that makes the most sense for your finances, lifestyle, driving routine, and personal preferences.
The following compares the pros and cons of buying and leasing, the economics of each, and why you might choose to finance one way or another.
BUYING
Who Owns It
You can buy a car with cash or finance it and make monthly payments. Either way, it's yours.
If you finance a vehicle, you'll have to meet the obligations required by the lender, like a certain down payment amount and timely monthly payments. If you don't, they have the right to repossess the vehicle.
Most drivers don't have the cash to pay the full price of a vehicle upfront, so most people choose to finance through a dealership, bank, credit union, or private lender to cover the vehicle's value, plus interest, over a period both parties agree on, typically three to six years.
Lenders will look at your income, your credit score, and the cost of the vehicle to determine the terms and interest rates on your auto loan. After negotiating and signing some paperwork, the vehicle is yours to do as you please.
Upfront Costs
If you're financing a car, the bank will probably request a down payment as a form of security. Your down payment should range between 10% and 20% of the vehicle's MSRP to secure your car purchase. This also reduces the cost of your monthly payment.
You can also trade in another vehicle and use any equity toward your down payment. The amount of the down payment is usually based on the lender's requirements and your credit score.
Future Value
New cars depreciate over time. In fact, within the first year of ownership, a vehicle will lose nearly 20% of its value, according to Trusted Choice Insurance. The amount a vehicle depreciates varies depending on its market value, make, model, and even the year it was manufactured.
Despite depreciation, buying a car is a great way to build equity, as long as your payments outpace the rate that its value decreases. You can use this equity to pay for your next vehicle when you're ready to get one.
Your vehicle will be worth whatever you can sell it for in the future and that depends on how well you maintain it. (Be smart and protect your investment with regular scheduled maintenance by a factory-authorized facility!)
End of Payments
Once you've paid off what you owe on your contract, that's it. Your vehicle is 100% yours. The lending institution will send you a lien release as proof that the vehicle is paid off and all yours.
LEASING
Who Owns It
You don't own the car when you lease. You're paying for the use of the vehicle, but the finance institution that you leased it through actually owns it. This is usually why you pay less per month in a lease than if you were to buy the car.
Leasing also protects drivers from unexpected drops in value from unexpected circumstances. For example, if the vehicle you lease depreciates due to a recall, this won't affect you the way it would if you purchased a vehicle.
Upfront Costs
Leases often don't require any type of a down payment. All you usually have to pay is the first month's payment, a security deposit, the acquisition fee, and other fees and taxes. But, as with a purchase, if you want to lower your monthly payments, you can always pay more upfront.
Future Value
In most leases, you don't end up owning a vehicle. Therefore, you won't be responsible for selling it. That's the financial institution's job. However, you may have mileage limits-typically between 12,000 and 15,000 miles per year-and wear and tear guidelines that, if you exceed them, could cost you extra money when you turn your vehicle back in.
Most lease terms range between two and three years, which may be attractive to drivers who like to drive a new car every few years. Leasing could also allow you to drive more car for less money, especially if you can only afford to buy a car at a lower market value.
End of Payments
Most people return the vehicle at the end of the lease term, but some like to purchase it during their lease or at the end. Others like to trade it in before their lease is over. Just ask us about these different options before signing any paperwork and we'll make sure that you have your lease set up the way you want it.
Best Cars to Lease
The best cars to lease are those with the best book value after the term of the lease. Since they depreciate less, you pay less. Review the lease ratings to see which cars retain their value.
Buying vs. Leasing: Which Is Right for Me?
Shopping for a new car is always exciting, but it can be difficult to choose between buying and leasing a vehicle. If you're on the fence over buying or leasing, talk to a car dealership near you to discuss your options. They'll go over each option and help you find a form of payment that makes the most sense for your financial situation.
The finance center at Balderston Auto Group offers a variety of leasing and financing options for the new DealerGroup_Black and used vehicles in our inventory. If you're ready to lease or buy your next vehicle, contact us online.
Frequently Asked Questions (FAQ)
Is it smarter to buy or lease a car in Missouri?
Whether it is smarter to buy or lease a vehicle depends entirely on your personal driving habits, financial goals, and lifestyle preferences. Financing to buy is generally the smarter financial move if you plan to keep the vehicle long-term (more than 5 years), drive a high number of annual miles, and want to build ownership equity. Leasing is typically the smarter option if you prefer lower monthly payments, want to drive a brand-new vehicle with the latest safety technology every 2 to 3 years, and maintain a predictable, low-mileage routine.
What are the hidden costs of leasing a car vs. buying?
The primary hidden costs of leasing a vehicle include excess mileage charges if you exceed your annual limit, potential wear-and-tear fees upon vehicle return, and an acquisition or disposition fee. For vehicle purchases, the long-term costs involve out-of-warranty mechanical repairs, routine maintenance after factory coverages expire, and the impact of rapid vehicle depreciation during the first few years of ownership.
Can I trade in a financed or leased vehicle early?
Yes, you can trade in a vehicle before your contract ends whether it is financed or leased, but the financial implications differ. If you financed a purchase, you can trade the vehicle at any time; any positive equity can be applied directly to your next vehicle, while negative equity must be paid or rolled into the new loan. If you are in a lease agreement, trading in early typically requires paying an early termination fee, purchasing the vehicle outright from the leasing company, or rolling the remaining lease balances into your next contract.
Who is responsible for vehicle maintenance during a lease?
The lessee is responsible for keeping the vehicle properly maintained according to the manufacturer’s recommended service schedule, which includes regular oil changes, tire rotations, and brake inspections. Because most lease terms coincide with the manufacturer’s bumper-to-bumper factory warranty, major mechanical breakdowns are usually covered, but regular upkeep is required to avoid lease-end reconditioning penalties.
What happens at the end of a car lease?
When a car lease agreement ends, you have three primary options: return the vehicle to the dealership and walk away (after paying any applicable disposition, mileage, or wear fees), trade the vehicle in toward the lease or purchase of a brand-new model, or buy the vehicle outright for the residual value predetermined in your original lease contract.