To lease or to buy, that is the question. The answer is it depends. There is no right answer; it depends on what is best for you. Both are methods of financing a car. One finances its use, the other its purchase. Both have advantages and disadvantages, and the choice depends on what’s most important to you. Do you live for the here and now, or do you look to the future? Most “here and now” people don’t want the major repair risks and enjoy having a new vehicle every two or three years. For people looking toward to the future, they want long-term savings and ownership. Neither philosophy is right or wrong.
If you buy a car, you are paying for the entire cost of the vehicle. You normally make a down payment and pay sales tax. If you take out a loan, you will need to pay it back, along with interest. It is said that a car starts to depreciate when you drive it off the lot. In essence, this is true, and if you decide to sell the car, you could actually end up owing more than it’s worth. Plus if the car needs repairs, they are your responsibility.
When you lease a car, you are really only paying for a portion of it. You normally make a down payment and are then required to make monthly payments, which include a depreciation charge and a finance charge. The depreciation charge is the portion of the car’s value lost during the lease. The finance charge is the interest on the money the leasing company has tied up in the vehicle. When the lease is up, you return the car. Keep in mind you have nothing to show for the money you have spent.
What is the best option for you? Buying a car means higher monthly payments, which are buying you equity. Granted, the car will be worth a lot less once the loan is paid off, but it will be yours. Leasing means lower payments and no equity. Consider this scenario. Three years from now, are you driving a new car and making monthly payments, or are you driving your three-year-old car and making no monthly payments? Which is more important to you?