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    Here’s Why It’s Almost Always Better to Buy Instead of Leasing a Car

    Damien Frost
    Damien Frost - 2019-12-14T22:00:00.000Z

    If you’re just considering the upfront costs, leasing a car will seem like just the right choice.

    Look at the bigger picture, and you’ll realize there’s a lot more at stake.

    Of course, the biggest factor is money.

    When deciding, it is important to get an estimate of your potential savings and benefits over the long term.

    Recent consumer reports show that most Americans prefer purchasing a car over leasing one.

    The reason is simple – when you buy a car, each payment that you make builds equity over time.

    Eventually, you’ll have acquired an asset that can later be sold.

    While the choice between buying or leasing depends on your financial situation and personal preferences, there are some other practical aspects that you must take into consideration.

    Here’s why it’s better to buy instead of leasing a car.

    Ownership

    Leasing a car is like renting a car. You don’t own it, but pay a monthly fee for using it.

    Most car leases are usually between 36 to 48 months.

    At the end of the contract, you have the option to return it to the dealership or buy it in exchange for a predetermined amount decided in the lease agreement.

    Buying a car might mean higher monthly payments over the long haul, but more importantly, you own the car and are free to sell it anytime or modify it however you deem fit.

    Upfront and Long-Term Costs

    When you buy a car either outright or with financing, the upfront cost includes a down payment, taxes, registration charges, and other fees.

    On the other hand, a lease includes a first-month fee, acquisition fee, registration, taxes, security deposit, and other fees.

    When compared, the upfront fee on a lease is generally lower than buying.

    Still, leases are also usually accompanied by higher interest rates.

    Apart from the monthly payment, there may be other expenses associated with leases like mileage overage rates.

    Moreover, it’s not helping you build an asset.

    Conversely, when you buy a car, every payment paid brings you closer to full ownership of the car.

    For instance, a new car’s market price is $20,000.

    You have the option to drive this car for 36-months by paying $199 per month, and a down payment of $2000.

    You don’t have to worry about regular maintenance but are liable for damages.

    For most consumers, a low monthly fee is a great option.

    Run the numbers and you’ll realize that you have paid $9,164 over the life of the lease.

    This implies that you’ve paid almost 50% of the actual cost price of the car, without even owning 1% of it.

    Contrarily, every penny that you spend on monthly payments when you buy a car builds equity in the vehicle over time.

    Refinancing

    You can’t refinance a lease and even when you wish to change some of the lease terms, if a lender agrees to it you will likely be penalized for violating the terms of the original contract.

    However, when buying, you can easily opt for refinancing to extend the loan life, decrease the interest paid, and access lower monthly payments.

    Buying a car gives you the flexibility to adapt per personal financial circumstances, unlike leases.

    For instance, if you financed a $20,000 car at 4.5% for 3-years, you’ll be paying roughly $595 a month till the end of the term.

    Based on your credit score and income-debt ratio, you can apply to refinance the loan.

    Assuming you get a lower interest rate (2.5% or higher), your monthly installment will decrease accordingly.

    Early Termination

    Not many lenders agree to terminate lease agreements before the end of the agreement without penalties.

    In rare cases, if they agree, you’ll be charged additional fees for breaking the contract.

    When you buy a car, you have the option to sell it or trade it in for a newer model to terminate or modify a loan.

    Capping on Miles

    If you drive a lot, leasing isn’t the right choice.

    Most car leases come with a mileage cap that sets a maximum number of annual miles you can drive without paying extra fees.

    A common example of leasing is 36 months or 36,000 miles.

    If you reach the mileage sooner than the established time-period, lenders will charge you extra per mile.

    So, on a leased car, if you drove 5000 extra miles above the cap at a rate of $0.10 per extra mile, you will be charged $500 in addition to the monthly fee

    When you buy a car, there is no cap on mileage, period.

    Drive as much as you want and no one is charging you for additional miles.

    Final Thoughts

    Buying a car is always cheaper if you plan for the long term.

    We recommend that you consider your own financial picture as well and unique preferences instead of basing a decision solely on emotion.

    While there is no one-size-fits-all answer to this debate based on varying financial circumstances of borrowers, it invariably makes more sense to buy instead of leasing.