Lease or Buy: Which is Better?

When you buy a new car you have two basic options: you can buy it or you can lease it. Leasing a car is when you “rent” the car for a certain amount of time, paying monthly for it but eventually returning it when the lease is up. It’s the same concept that applies when deciding whether to rent or buy a house. It all depends on what is best for you.

Leasing

When you lease, you only pay a portion of the cost of the car. That portion relates to the length of time you use the car, or the length of your lease. While you are leasing, you will make a monthly payment until you return the vehicle. Leasing is similar to renting, but it is also like a loan on which you have to pay interest. When you first lease a car, the dealership will estimate how much the car will be worth and how much it will depreciate during the length of your lease. You will then pay the difference between how much it is worth when you lease and how much it is expected to be worth when your lease is done. One advantage of leasing is lower monthly payments.

Buying

If you decide to buy a vehicle, you will be paying the entire cost of the vehicle. When you decide to buy, you will have to get an auto loan unless you can afford the car outright. You pay the principal and interest on the loan, and the car is yours. You do not have to worry about returning it, how many miles you drove, or what kind of condition the car is in when you return it. Monthly payments for buying are higher and your car will depreciate in value pretty quickly.

What Is the Best Option?

Which is better? Leasing is for you if you like to have new cars every couple of years, want lower monthly payments, and do not need to own the car. If you prefer ownership, want to keep the same car for a while, and do not want to worry about how many miles you drive or the condition of the car, then buying is for you. Buying is the more popular and less complicated route. When deciding what the best route is for you, you should take a look at your finances to make the decision.