It is time for a new car, and you are now faced with the decision between leasing or buying one, which is an incredibly difficult choice for many who are shopping for a vehicle. Fortunately, you can make an appropriate decision and get a great vehicle at an affordable price by understanding both options and determining which is most suitable for you.
It is helpful to have an understanding of what the process for each option is, the benefits of both car buying and car leasing and the potential drawbacks when choosing each option. Each individual who is looking for a new vehicle should consider their own needs and preferences as the better choice varies from person to person.
The following is a complete overview of leasing vs buying a vehicle in 2020. In this review, we go over what to expect during the car leasing or buying process and how to choose the best option.
An Overview of Car Buying
Car buying is the process of purchasing a car either entirely upfront or through monthly payments to gain ownership of the vehicle. It is perhaps the more traditional way of obtaining a vehicle long-term.
Car buying, as opposed to car leasing, is ideal for those who prefer to own the vehicle they purchase and do not paying more in order to do so. Unlike leasing, each payment made towards a car purchase goes towards ownership, whereas lease payments are only to rent the vehicle for a specified amount of time.
The process of buying a car
There are several ways to purchase a vehicle, including through traditional auto dealerships, buy here pay here dealerships and through private independent sellers. Traditional auto dealerships and buy here pay here dealerships are similar as they both offer to finance, although a traditional dealership offers financing through separate financial institutions and buy here pay here dealerships offer to finance themselves (as the name indicates). Upon purchasing a vehicle, the buyer is most likely responsible for a down payment, which is typically at least ten percent of the total cost, but varies.
Benefits of car buying
There are many financial and other benefits to car buying, including the ability to gain ownership and use the vehicle the way you desire. Here are five primary benefits to car buying:
- Ownership – Once the buyer officially pays off the vehicle, they are given the deed and own the vehicle. At this point, they can continue to drive the vehicle without monthly payments or sell the vehicle.
- Value – The money you put forward via monthly payments goes towards purchase. Once you make the final payment, you then have value in the vehicle and can sell it. The sell value can go towards the down payment for another vehicle.
- Modifications – When purchasing a vehicle, the buyer can make as many modifications as they want while they pay off the loan. This means they are free to get new tires, add window tint or even change the paint color.
- No mileage limit – Purchasing a vehicle allows the buyer to drive the vehicle as much as they want, whereas leasing a vehicle may require mileage restrictions.
- Easier process – Many consider the buying process easier and find it to be easier to secure financing than it is to get approval for a car lease.
Car buying is great for those who want to own their vehicle after they are finished making payments and do not mind paying more for a down payment and monthly to gain ownership.
However, there are some drawbacks as well. In addition to a higher down payment and increased monthly costs in many instances, there is likely also a far more limited warranty, and the buyer is responsible for most if not all necessary repairs. Buyers also have to consider higher prices due to sales tax and interest for the loan, along with an unpredictable resale value after paying the car off.
An Overview of Car Leasing
Car leasing is the establishment of a contract to provide the borrower with a car for a fixed amount of time while they make monthly payments. At the end of the lease, the car is returned to the borrower, rather than the borrower gaining ownership of the vehicle as is the case with car buying.
Car leasing is ideal for those who prefer lower down payments and monthly payments in the short-term and do not care as much about owning the vehicle at the end of the contract.
The process of leasing a car
You can lease a car similar to how you would purchase one, and many dealerships offer leasing options. However, it may be harder to secure a lease if you have bad credit than it is to secure financing. Once you find the right dealership, you may have to make an upfront payment or deposit.
Benefits of car leasing
The advantages to car leasing include lower payments in the short-term, along with better coverage if a repair is needed and the ability to get a new vehicle more often. Here are several key benefits to car leasing:
- Lower upfront cost – Since the vehicle is not being purchased, the upfront cost is typically lower with car leasing. However, there may be upfront fees such as the first month’s payment and a security deposit.
- Lower monthly cost – On average, the cost per month is significantly lower for the same year and model of vehicle when leasing as opposed to purchasing.
- Better warranty – Similar to renting a home as opposed to purchasing, the one who provides the lease typically covers the majority of repairs for the vehicle.
- No long-term obligation – Most lease contracts are two to three years, whereas purchasing a vehicle requires making up to five or six years of monthly payments. After the contract is up, the borrower is able to lease a new vehicle or purchase their current one.
- Easy trade-in process – For those who like to switch vehicles more often, the trade-in process for a car lease is much easier with leasing. Once you return the vehicle at the end of the lease, you can pick up a lease for a new vehicle on the same day.
Car leasing is the perfect opportunity for those who desire to pay less upfront and for each month and want more coverage for repairs.
Perhaps the most notable drawback to leasing a vehicle is not being able to own the vehicle at the end of the contract, and there is no equity in each monthly payment. Additionally, leasing often comes along with restrictions on modifications that can be made to the vehicle and mileage limits. The borrower cannot sell the car either, and there may be unexpected costs at the end of the lease the borrower was not prepared for.
How to Determine The Best Option
As mentioned, what works best for one driver may not work best for another, and it depends on your needs and preferences. When it comes to leasing vs buying, there are several key factors to consider, which include:
- Length of use
The short term cost is often less with leasing, although the long-term value might be greater when purchasing. Additionally, those who plan to drive a lot or want to make modifications may prefer purchasing which provides more flexibility on how the vehicle is used. For those who want to drive the vehicle for more than several years, purchasing is likely best, whereas those who do not care about ownership are likely best suited for leasing.