Potential vehicle buyers are often puzzled over one of the most important financial decisions that comes into play when putting a new ride in your driveway: Should I lease a new vehicle or buy? Both options are available to those with solid credit, and both have pros and cons. Those drawbacks and benefits are different for every customer, depending on factors like your monthly income, how much you drive your vehicle every year and how much you have for a down payment.
Seen below, check out McLarty Daniel Chrysler Dodge Jeep Ram of Bentonville’s short primer on the pros and cons of leasing vs. buying a new vehicle. And when you’re ready, stop in and see our friendly finance professionals, who can walk you through both options to figure out which is truly right for you and your family.
SO WHAT’S THE DIFFERENCE BETWEEN BUYING AND LEASING?
Buying a vehicle, as you might expect, is exactly what it sounds like. If you finance a vehicle to buy it, you select the vehicle you can afford, negotiate the price with the dealer, make a trade-in or down payment toward the final cost of the vehicle, and then agree to finance the remaining price of that vehicle in a series of monthly payments for a set period, with 36, 48 or 72 month payment terms being common. When you finish paying all the payments, the dealer releases the vehicle’s title to you and you own the vehicle outright.
Leasing, on the other hand, is very different. Without getting too deep into the financial weeds, the basics of leasing are: Instead of monthly payments toward the purchase cost of a vehicle, the customer pays an agreed-upon fee every month to drive the vehicle for a set period of time, often with a cap on how many miles can be put on the vehicle every year. In addition to fees and interest on the lease, those monthly payments cover the depreciation of the vehicle — the amount of value the vehicle loses each year due to factors like wear and tear, mileage increases and other issues. Most people who lease a vehicle never plan or even want to own it outright. When the lease term is up, customers who lease often bring the vehicle back and lease another new vehicle.
WHAT ARE SOME OF THE BENEFITS OF LEASING A VEHICLE?
1) Lower Monthly Payments: This is a big one for a lot of people who choose to lease. Because lessees aren’t purchasing the vehicle, only paying for its depreciation, the monthly payment on a leased vehicle can sometimes be hundreds less than a monthly note.
2) You Get A New Car More Often: If you’re someone who loves the feel of a new car or just likes having the latest styling, technology, fuel economy advancements and safety features, leasing is a way to have that feeling more often. Two year lease terms are common, and who wouldn’t want to be able to get a brand new vehicle every two years?
3) You Always Have Warranty Coverage: If you buy a vehicle, there’s a chance you’ll still be paying on it when the warranty runs out, leaving you stuck paying for service or repairs if anything goes wrong. With a leased vehicle, you’re always driving a vehicle with the full factory warranty in effect.
4) You Might Have A Smaller Down Payment: Leasing a vehicle often involves a smaller down payment than buying a vehicle, with some leases requiring nothing at signing. Every lease is different, however, so talk to your finance professional.
5) If you like Your Leased Vehicle, You Can Probably Keep It: At the end of the lease term, many dealerships offer customers the option of converting their lease into a purchase plan that allows them to buy the vehicle outright.
WHAT ARE SOME OF THE DRAWBACKS OF LEASING A VEHICLE?
1) You Don’t Own The Vehicle: Some people just like the feeling of knowing that when the last payment is made, they’ll own the vehicle they’ve driven for years. Something else to consider, especially if you like to make your vehicle unique: leasing can severely restrict your ability to do permanent modifications like adding custom paint, a booming stereo or a lift kit.
2) There Will Likely By A Mileage Limit: Lease agreements often include strict caps on how much mileage you can put on the leased vehicle every year, with stiff excess mileage charges if you go over that limit. Sometimes these charges can be as much as 25 cents per mile, which can add up quickly. Before agreeing to a lease, consider carefully how much you’ll be driving the vehicle every year. If you put a lot of miles on a vehicle every year, you might be happier buying.
3) You Probably Need Exceptional Credit To Lease: While it is possible to lease a vehicle with moderate or poor credit, doing so often results in a monthly payment that negates a lot of the cost-saving benefits leasing has over buying. Most dealerships offer their best lease deals only to those with excellent credit, so if you are building your credit, or rebuilding your credit after a bad financial period, you should probably buy.
4) You Won’t Have a Trade-In At The End of Your Lease: Trading in your old ride to help offset the cost of a new vehicle is a great way to help lower your monthly payments when financing a car. Many dealerships are even willing to value your trade-in at a price that’s thousands more than you could ever expect to get for it if you sold that vehicle for cash. When your lease term is up, however, you have to give the leased vehicle back (unless you make a deal to buy it, as we mentioned above). That means you won’t have a trade-in if you want to buy a vehicle in the future, and will have to pay a cash down payment if you lease again.
5) You’ll Have Payments As Long As You Lease: When buying a vehicle, there’s something nice about knowing that when the note is paid off, you’ll own the vehicle and can put the money you had been paying toward it every month toward something else, like another new or pre-owned vehicle for your family. With leasing, you might get a new vehicle more often, but you’ll have to pay the payment every month for as long as you lease.
We’ve only got room here to hit the high points of the pros and cons of leasing vs. buying. The friendly finance professionals at McLarty Daniel CDJR of Bentonville can answer all your questions and then some, on you way to getting behind the wheel of the beautiful new vehicle you deserve at a price you can afford! Stop in today at McLarty Daniel CDJR, or contact our finance department online right now.
