Lease vs. Buy Overview
When you lease a car, you don’t own it. Instead, you pay for what you use - the difference between the value of the car when you take possession and its value when you return it. When you buy, you pay the full purchase price and you own the thing.
As you make the lease vs. buy decision you should carefully consider any restrictions that come with a lease. When leasing, you may have:
- Maximum annual mileage limits
- Inability to get out of a lease and switch cars
- Inability to modify or upgrade the car
- Requirements to keep the car’s interior, exterior, and working parts 'like new'
Lease vs. Buy Costs
In general, you’ll have lower short term costs if you lease vs. buy. You can get a nicer vehicle with a smaller monthly payment. However, the long term costs are higher. In part, this is because you never own anything. By buying the vehicle you end up with something you can sell - allowing you to recoup some of your costs - or use until it dies.
You may also have higher costs than you expected if you lease vs. buy the vehicle. If you exceed your mileage limit or have to repair cosmetic damage (that you could just live with if you owned the car) your costs will rise.
Some people avoid the lease vs. buy decision altogether because they think you can only negotiate when you buy. In fact, the purchase price is negotiable even when you lease. Likewise, you can shop for different lease agreements among a variety of vendors; you’re not limited to the auto dealer’s offerings.
Arguments for Leasing
Here are some factors that would make you decide to lease vs. buy your vehicle:
- You need a nice, new automobile (for client travel, for example)
- You know that you can satisfy the lease agreement
- You take care of your vehicles
- You do not drive more than 15,000 miles per year
Arguments for Getting a Loan
Here are some factors that would tilt the lease vs. buy decision towards buying:
- You are most concerned with minimizing long term costs
- You drive more than 15,000 miles per year
- You like to drive your car into the ground before replacing it
- You want the flexibility to change or sell your car at any time
If you’re leaning towards leasing vs. buying your next vehicle, you’ll have to do some more homework before making a final decision. Some ideas to get you started:
- Consider gap insurance
- How fast does the vehicle depreciate?
- What will it cost to insure a fancy new (leased) vehicle vs. your old heap of junk?
- What are your options and costs at the end of the lease?