Are you trying to decide between leasing a car vs. buying a car? One of the most important parts of deciding between leasing vs. buying a car is understanding what you can afford each month. While buying a car is the most cost-effective option in the long run, there are some short-term reasons you might choose to lease a vehicle.

In the sections below, we compare the pros and cons of leasing vs. buying a car so you can make the best decision for your financial situation.

Pros and cons of leasing a car

You may consider leasing a vehicle for the lower upfront cost or new car perks. Potential disadvantages of leasing include mileage limits and wear and tear fees.

Pros: leasing a car

• Lower upfront cost: Though some leases require a down payment, it’ll likely be less than what’s required when you buy a car with an auto loan. A lease down payment is often called a “capitalized cost reduction” or “cap cost reduction.”
• Lower monthly payments: Lease payments are usually lower than car loan payments because, besides fees, you’re primarily paying for the vehicle’s monthly depreciation.
• New car perks: The great thing about leasing is you get to drive a new car with the latest features. In some cases, leasing may enable you to drive a nicer, newer car than you can afford to buy.
• Potentially fewer repairs and maintenance: Since you lease a new vehicle, it’s probably still covered by the manufacturer’s warranty. Additionally, your lease may end before the vehicle requires major repairs or maintenance.

Source: https://www.experian.com/content/dam/noindex/na/us/automotive/finance-trends/2022/q1-2022-state-of-automotive-finance-market.pdf

Cons: leasing a car

• Wear and tear fees: If you don’t keep your leased vehicle in pristine condition, you’ll have to pay excess wear and tear fees when the lease ends.
• You can’t change the vehicle: Since you eventually have to return the vehicle, you can’t make changes to it—such as tinting the windows or adding a new bluetooth system.
• Mileage limits: Most leases have a mileage limit of 10,000 to 15,000 miles per year. If you exceed the limit, you’ll pay for the additional mileage.
• Early lease termination fees: If you want to end your lease early, you’ll be charged pricey termination fees.

Pros and cons of buying a car

Perhaps the greatest advantage of buying a car is owning the vehicle and making changes to it as you’d like. However, buying a car can be pricey upfront and may come with costly repairs down the road.

Pros: buying a car

• Eventual ownership: When you buy a car, all your payments go toward eventually owning the vehicle. This is why buying costs less than leasing in the long run.
• You can customize your car: One of the perks of buying a car is making it your own. From new seat covers to an upgraded sound system, you can customize your car as you want.
• No mileage limits or wear and tear fees: Since you own your vehicle, you don’t have to adhere to mileage limits or pay wear and tear fees. However, high mileage or damage to your vehicle could impact its eventual resale or trade-in value.
• You can sell or trade in your vehicle: When you own your car, you can sell it or trade it in for a different vehicle at any time. When you lease a vehicle, you don’t have this kind of autonomy.

Cons: buying a car

• Higher upfront cost: Whether you pay for your vehicle in advance or put a lot of money toward your down payment, buying usually has a higher upfront cost than leasing.
• Higher monthly payments: If you buy your car with an auto loan, your monthly payments will be higher than lease payments because you’re paying off the total cost of the vehicle.
• Pricey repairs and maintenance: Once your car’s warranty ends, you’re responsible for major repair and maintenance costs. These can get pricey, especially as your car ages.
• Depreciation: Over time, your car depreciates in value. This makes its resale and trade-in value unpredictable.

Leasing a car vs. buying a car: which is right for you?

Before we discuss which is right for you, let’s compare all the leasing vs. buying a car pros and cons in the table below.

When to buy a car

Clearly, there are advantages and disadvantages to leasing a car vs. buying a car. In the long run, however, buying a car may be the more economical choice. Despite the higher upfront cost and monthly payments of buying a car, this option saves you money over time. If you finance your vehicle, be sure to understand how auto loans work.

Buying a vehicle also comes with the freedom to change it, but with this freedom comes—you guessed it—responsibility. Taking care of your car through regular maintenance and repairs keeps your vehicle safe and could help you resell it when the time comes.

What’s the maximum monthly car loan payment you can afford? Use our auto loan calculator to find out.

When to lease a car

Leasing a car, though less expensive in the short term, costs much more than buying a car in the long term. When you make your last auto loan payment, you own the car. This isn’t true when you make your last lease payment. When your lease ends, you can buy your leased vehicle or start leasing a new car. Either way, you have more monthly payments coming your way. Over time, these add up.

When does it make sense to lease a car?

If driving a new car with the latest features is important to you, leasing is worth considering—just remember that it’s a more costly option than buying a car. Since the average lease term is about 36 months, according to 2022 data from credit reporting company Experian, you could potentially drive a new vehicle every few years.

Leasing might also make sense if you can’t afford to buy a car upfront or make monthly auto loan payments. Lease payments are generally less expensive than auto loan payments. While this can be a helpful short-term means to driving a car, it’s easy to get in the long-term habit of leasing a vehicle. Paying a monthly auto lease also limits your ability to save for an auto loan down payment.

When to avoid leasing a car

While it may be best to buy a car, we understand that not everyone can afford an auto loan. However, for the types of people below, buying a car is usually a better option than leasing a car.

• Frugal folks: If you're looking for the most bang for your buck, buying a car vs. leasing a car is the way to go. Why? Buying costs less in the long run.
• Distance drivers: If you drive more than the average person, which is about 13,500 miles per year according to the U.S. Department of Transportation's Federal Highway Administration, you should consider buying a car instead of leasing one. Exceeding a car lease’s mileage limit could cost you a lot.
• Prudent parents: If your child spills red juice in your leased vehicle, you’ll pay the price in wear and tear fees. When you buy a car, juice can spill freely—or at least with fewer repercussions and a little less stress.

Are you ready to decide between leasing vs. buying a car?

Learn About Cadence Bank’s Auto Loans

We hope you have a better grasp of pros and cons of leasing vs. buying a car . The decision ultimately depends on your short- and long-term goals, finances, and personal preferences. If you decide that buying a car is right for you, Cadence Bank offers personal loans and lines of credit that can finance your new vehicle.

To learn more, contact us today or read about other personal finance topics in our insights and articles.

Source: https://www.experian.com/content/dam/noindex/na/us/automotive/finance-trends/2022/q1-2022-state-of-automotive-finance-market.pdf

This article is provided as a free service to you and is for general informational purposes only. Cadence Bank makes no representations or warranties as to the accuracy, completeness or timeliness of the content in the article. The article is not intended to provide legal, accounting or tax advice and should not be relied upon for such purposes.