Car Leasing vs. Buying: How to Choose?

Choosing car leasing vs. buying essentially comes down to one question: do you prefer lower payments or equity and greater freedom?

The primary advantages of a lease are lower payments and (if you adhere to the terms of the lease) the potential for fewer headaches. Generally, a lease requires an initial payment followed by monthly payments over a specified term at the end of which the lessee returns the vehicle to the dealership. In some cases, the lessee will have the option of purchasing the vehicle at the end of the lease. Someone who leases perpetually is able to constantly drive a new or almost new vehicle that is covered by warranty and never has to worry about selling or trading in their car; they simply lease another brand new car when the term expires.

However, there are several downsides to leasing. For one, a lessee is constantly making payments; if you lease your vehicles over a 10 year period, then you are making payments that entire time. While these payments may be lower than they would be on a purchased car, no equity is built up. Also, many leases set a limit on how many miles the car can be driven and if that amount is exceeded, penalties will be assessed. Additional fees may be charged if the lessor feels that excessive wear and tear has occurred.

Purchasing a car allows greater freedom. As an owner, nobody else can dictate how many miles you drive or how to treat your vehicle. If you want to take road trips or take part in outdoor activities, you don't have to worry about having extra fees assessed because you drove too much or because the bumper was scuffed. Additionally, building up equity means that part of your payments can be recouped by selling the vehicle. In many cases, the cash gained from selling a car exceeds the amount of money that would be saved by lower payments under a leasing plan. As previously mentioned, a lessee will constantly be making car payments. An owner, however, may pay off a car in three or four years and keep it for as long as they want.

Of course, there are several negatives associated with buying a car as well. One is that after the warranty expires, you must pay for an extended warranty or handle any maintenance expenses yourself. Additionally, due to depreciation it is possible to get "upside down" in a purchase agreement, meaning that the amount owed on the car is more than the car itself is worth, leaving you in a very vulnerable financial position if for some reason you are forced to sell the vehicle.

There are strong arguments to be made for either leasing or purchasing a car. For someone who knows that they are only going to drive a certain number of miles a year, who wants to continually drive a newer vehicle with lower payments, leasing is likely the best option. For someone who would prefer to keep a car for a longer period of time rather than dealing with returning their car to the dealership and leasing a new one every few years, and who values the freedom and equity that come along with ownership, purchasing the vehicle is probably the way to go.