Buying vs Leasing

In the past, leasing seemed like something only business owners did. Now that is just not the case anymore. Buying and leasing are both viable options with pros and cons to each.

Pros of Buying

• You will own the car and be done with car payments
• Insurance is typically lower
• You don’t have to worry about going over set mileage

Cons of Buying

• You may have a higher monthly payment
• You may have to make an initial down payment
• The car will depreciate; if you put down a small down payment you may find that at one point the car becomes worth less than you owe

Pros of Leasing

• Lower out of pocket costs when acquiring and maintaining the car (there are little to no down payments)
• Monthly payments may be lower
• You can own a new car every few years
• You do not have to absorb the full depreciation cost of the vehicle
• Tax alternatives for business owners

Cons of Leasing

• You always have a car payment
• You never really own your car (depending on your lease you may go from lease to loan payments)
• Mileage restrictions — if you go over the set miles you will have to pay more
• Insurance is usually higher for leased cars
• You may be charged for “excess wear and tear”—you should understand exactly what this means before you sign a lease agreement

Your lease amount is determined by the different between the purchase price and the salvage, or residual, value. This is the predetermined value of the car at the end of the lease period. Therefore, if you lease a car with a high depreciation rate you may end up with a very low residual value–this will increase your monthly payments.

There are two kinds of car leases. A closed-end lease means you give the car back when the lease term is up. This is when you will pay for wear and tear and excess mileage. An open-ended lease means that you must purchase the car at the end of the lease period for a predetermined amount.