No Car Payments Until 2020!

If you thought conversations about religion or politics could get contentious, try being a fly on the wall when two people are talking about whether to lease or purchase a car. You’ll see both sides at each other’s throats, each claiming to enjoy the lion’s share of advantages and disdaining the drawbacks of the other–and the funny thing is, they’re both right.

Buying a car versus leasing is less a financial issue than a matter of lifestyle. A financial tally of both options would probably show you a fairly clear-cut choice, but you’d be overlooking the benefits and drawbacks associated with whether or not the car actually belongs to you.

If you’re the kind of person who likes to drive off the lot in a new car every few years, leasing is the way to go. Not only will you ensure you’re always behind the wheel of a relatively shiny set of wheels, but since monthly lease payments are usually lower than loan payments, you’ll be getting more car for your dollar.

On the other hand, if your goal is wringing maximum value out of your investment, buying is the way to go. Once you’re done paying, you simply keep on driving–no monthly payments in sight.

Let’s look at the major advantages and drawbacks of both leasing and purchasing a car.

Advantages of Leasing

• You pay less money up front. Compared to the down payment for a new car loan, the down payment for a leased vehicle is much lower, or even nonexistent.
• Your monthly payments are lower, too. When you’re on a tight budget, a lease may be the way to go simply because the monthly payments are low, low, low. Unlike payments for a car loan, lease payments only need to cover the car’s depreciation during the term of your lease (plus interest, taxes, and fees).
• It’s easier to get approved for a lease than a new car loan. The goal posts are closer when you apply to lease a car than when you apply for a new car loan.
• You won’t foot the bill for major repairs. Because most new-car warranties last the life of a typical lease, your only maintenance costs will consist of routine things like changing the oil, rotating the tires, and other recommended maintenance.
• You’ll always drive a car with the latest tech and features. When you replace your car every two to three years via a new lease, you’ll always have access to the latest technologies.

Disadvantages of Leasing

• Your insurance rates are higher. When you lease, your insurance policy has to cover the amount that’s still owed on the lease in case the car is totaled.
• You’re left with no trade-in. When your lease is up, you’re left with nothing of value to take the edge off the cost of the next car.
• You’ll pay a host of fees at both the beginning and end of your lease. While there are plenty of costs involved in taking out a new car loan, once it’s paid off, it’s over. At the end of a lease, however, you’ll still owe considerable fees.
• You’ll pay extra if you exceed mileage restrictions. When you turn in your car at the end of your lease, if you’ve driven more than the allowable number of miles (usually 12,000 to 15,000 miles per year), you could be liable for significant penalties.
• Ending a lease early could cost as much as paying out the contract. Early termination fees on leases run notoriously high.
• If you’re hard on your vehicle, you’ll pay penalties. A car lease will hold you financially liable if you exceed normal wear and tear on the leased vehicle.
• You need a good credit score in order to lease. While it’s generally easier to get a lease than it is a new car loan, you’ll still be required to have a strong credit score. Without one, you might have to buy a used car instead.
• You won’t be able to customize your car. Because a lease requires that you return the vehicle in relatively comparable condition as when you leased it, you won’t be allowed to customize or modify the car. That means no custom stereo installations, paint jobs, or anything that can’t be reversed or removed before you return the car.

Advantages of Buying

• The car is yours once you pay it off. You own something of value and have the freedom to do what you want to with it. Sell it, trade it in, maintain it in mint condition, drive it into the ground. The choice is yours.
• You can sell or trade in your car at any point. Need to get rid of your car or get rid of your loan? You can choose to sell or trade in even before you’ve paid it off, using the money to pay off the balance of your loan.
• Drive as much as you like. If you drive a lengthy commute to work, enjoy epic road trips, or just log a lot of miles on your car every year, you won’t find yourself chafing under mileage restrictions if you’ve chosen to purchase.
• You don’t have to worry about wear and tear on your vehicle. We all want nice things, but leasing a car is more like borrowing for a long time—you have to keep the vehicle in tip-top condition. If you’re hard on cars, buy it; then you can use it as hard as you need to.
• You won’t owe a big payment at the end of your payment term. A sizable balloon payment lurks at the end of the lease term for those who lease, but when you buy your car, your last monthly payment marks the end. Nothing more—you’re done.

Disadvantages of Buying

• Your monthly payments will be higher than lease payments. If your monthly budget is tight, leasing could be a better option.
• You’ll need to make a bigger down payment to bring down your monthly payments. If you want your monthly payments to be as low as those of your buddy who leased, you’ll need to put down a much larger down payment.
• A new-car loan is typically tougher to obtain than approval for a lease. If you’re having trouble getting approved for a new car loan, try looking at used cars instead.
• As your car ages, you’ll no longer have access to the latest features. Unless you’ve chosen a short loan term and plan to trade in as soon as you’ve paid off your car, you’ll be driving the same set of wheels longer than people who lease their cars. By the time they’re once again playing with the latest bells and whistles, you’ll still be driving the same vehicle you bought two or three years ago.