When you need a car, you have two options: buy or lease.
If you buy a car, you own it either by paying the full price up front or financing it with a loan. If you lease, you are renting the car for a set amount of time, and you have to either return it or buy it at the end of the lease term.
Buying is usually the more expensive option initially, but you own the car and can do whatever you want with it. Custom stereo? You got it. New paint job? Definitely. Monthly cross-country road trip? If that’s your thing, sure, why not.
Here’s what else you need to weigh:
|Pros of buying||Cons of buying|
|You own the car||Higher monthly payments initially|
|Unlimited mileage||Bigger down payment|
|Sell the car whenever you want||Loses value over time|
|Customize the vehicle any way you like||Maintenance costs|
“Everything in life is somewhere else, and you get there in a car.“
—E. B. White
Leasing can be more affordable on a monthly basis than buying, at least initially, but because you don’t own it there are restrictions on how you can use the car.
When you lease a car, you don’t pay the full price of the vehicle. Instead, you typically make a small down payment (there may also be some up-front fees) and then pay a set amount every month for the term of the lease. Your monthly payment reflects the lease’s interest rate plus the car’s depreciation that happens during your lease term (i.e., how much of its value it loses over that time).
There are other pros and cons to leasing, including:
|Pros of leasing||Cons of leasing|
|Lower monthly payments initially||No equity in the car (and you can’t sell it)|
|Easy trade-in (new cars on the regular!)||You always have a car payment|
|Usually covered by a warranty||The dealer might charge you for excessive wear and tear|
|Low (or sometimes no) down payment||Limited number of miles and fees for anything extra|
If you’re not sure what to choose, one option is to lease now and buy at the end of the lease term. This might be a good option if you:
On the other hand, if you don’t like the car, want something different, and have kept the car in great shape, you can turn it in and get a different vehicle.
Here are some issues to take into consideration when you’re making the buy-versus-lease decision:
When you need a car, you can buy or lease. Buying requires either an up-front payment for the total cost or financing the purchase with an auto loan. Leasing is more like a rental, and your monthly payment is based on depreciation during the lease term plus taxes, fees, and interest.