Searching for your next vehicle can be a fun, yet burdensome process. You want to make sure you’re doing what’s best for your finances, while at the same time satisfying your style and design preferences. With so many cars to choose from, it’s not easy picking the right one. These days, with rising inflation and low inventory in the used car marketplace, it’s more important than ever to weigh out your options. For most people, the options are simple: buying or leasing.
Option 1: Buy your next car
When someone refers to “buying” a car, it means that the person is either purchasing the vehicle outright with cash, or it means that the person is financing the vehicle to own it at some point (usually 5-7 years) in the future. Most people will choose the latter and finance their vehicle because less money is required up front. A bank will provide you with a loan at a certain interest rate, and then you will pay interest on the loan until the car is paid off. After the car is paid off through the terms of the loan, it’s all yours! No more payments and it’s yours forever.
Buying, or “financing,” a vehicle is generally seen as more financially responsible than leasing. This is because as you make payments each month, the money is going directly to the cost of the car. Upon satisfaction of the entire loan amount, you own the car outright. This is especially important for someone who wants to drive their car “into the ground,” so to speak. If you plan to drive the car for 10 or 15+ years, it’s a better option to buy your next car. Not to mention, the last half of those years will be payment-free. All you might need once you own the car outright is an extended warranty to cover any sudden issues. Beyond that, the car will be paid off. In essence, buying a car will ensure that each payment you make goes towards the loan amount of the car, whereas leasing does no such thing.
Option 2: Lease your next car
Leasing is different from buying a car in that when a car is leased, the owner of the car is actually the dealership or the bank. You’re essentially just paying them a fee to drive the car. Think of it as rental property that you drive. You are the tenant of the vehicle, and the landlord is the dealership. Once the lease term is up, you return the car to the dealership.
Some people might prefer to lease their next vehicle because the cost to lease is almost always cheaper than to buy. For this reason, it’s much easier to be able to afford to drive a car that might otherwise be unaffordable. Leases are also attractive because most things that go wrong with the car during the lease term are covered by the dealership. Engine light comes on? Take it to the dealership. Navigation is acting up? The dealership will fix it. For the most part, leasing is a much easier and hassle-free experience over owning a car. You just don’t have to worry about things going wrong. However, it’s important to remember that your money is basically rent money. You are renting the car for a predetermined amount of time at a certain monthly cost. The car goes back once your lease is up.
Buying or leasing: which way will you go?
The decision usually comes down to two things: the specific type of car you want to drive, and its cost. If you are absolutely set on driving a new Mercedes Benz, but you’re not sure if you can afford it, leasing is probably a better option. The monthly payments will be lower than if you were to buy it. However, if you want to save more money in the long run, buying (“financing”) a vehicle, new or used, will be the way to go. Think about the two options, run the numbers, and make the right decision for you and your family!