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Car Leasing vs. Buying a Car

Many car shoppers puzzle their brains over the common dilemma: to lease or buy a car. So which is better?

Leasing versus Buying

It is not possible to give a simple answer that leasing always is better than buying or vice versa. Both have their advantages and disadvantages and it all depends on your personal preferences and needs.

Do you want to have a new car every two or three years without any significant repair risks? Is ownership more important to you even if it means higher initial monthly payments? Which is more desirable - lower monthly payments or bigger long term cost savings?

These are all questions that different people will answer differently and this is the main reason why the "buying vs. leasing" decision should be made according to your personal situation and priorities.

Pros and Cons of Leasing a Car

When you lease a car you essentially rent the car for a particular time period (generally 3 to 4 years). This practice is very convenient since the monthly payments are relatively low and at the same time you benefit of driving a new car every few years.

In fact, this is the greatest advantage of leasing - you have lower costs when acquiring and maintaining your chosen car, pay little or no down payment and skip the up-front sales-tax payments.

Another advantage of leasing is that you eliminate the risk of getting upside down on your car loan. When you lease the car you pay only for the time you use the car (in other words for its depreciation for that period) and you avoid suffering the car's full depreciation.

Leasing the car can be a great solution if you cannot buy it. If the car you want to acquire is worth more that what the bank is willing to lend you, then you may consider leasing it.

However, leasing is not deprived of disadvantages.

First, when you lease a car you will never really own it. However, you will always have a car payment as long as you have your leased car.

Additionally, there may be mileage restrictions. This means that if you drive more than your allotted miles, you will have to pay more for every mile over your limit.

Also, often you will be required higher coverage costs for your car by the insurance company.

Pros and Cons of Buying a Car

Just like leasing, buying a car has its advantages and disadvantages.

To start with, by buying a car you actually gain ownership. This means that once day you will stop paying your car loan payments and do with your car whatever you decide. You can drive it as many miles as you want and sell it if you decide to do so. You will also experience lower insurance limits than if you leased.

However, these advantages come at a certain price. The most obvious disadvantage of buying a car is that you will have higher monthly payments and you will be usually required to put down a reasonable payment.

This is not the biggest drawback of buying a car though. When you buy a vehicle, you will have to pay its entire cost. Your car starts depreciating dramatically almost from the moment you drive it off the car lot. You will have to go through this depreciation of its value which is about 20% only during the first year. Thus, if you haven't put a significant down payment, it is very likely to end up upside down on your auto loan, meaning that you will owe more than what the car is worth.

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