What are the Pros and Cons of Leasing a Car?

lease or buy a carHave you ever thought about leasing a car versus buying one?  Leasing a car provides the opportunity to drive a newer car without some of the hassles of owning.  However, it’s commonly known that leasing is more expensive in the long-run than buying a used or new car.  Take a look at this analysis from Edmunds.com for a great comparison of buying new, buying used and leasing.

Let’s take a closer look at the pros and cons of leasing versus buying a car:

Pros of Leasing a Car

Less money upfront – There is typically less money required upfront for a lease.  There is little if any down payment and some upfront leasing costs.  Whereas buying a car typically requires a larger cash outlay for the down payment and sales tax.  You’ll also have lower sales tax with a lease since you only pay on the value of the car you use.

Lower payments and driving a new car – There are typically lower monthly payments depending on which type of car you choose to lease.  This is one of the primary reasons people are attracted to leasing.  Buying a new car is typically more expensive each month during the life of the loan because of the payments and finance charges.

Less maintenance – If you’re driving a newer car you’re going to have less maintenance expenses.  Older cars will eventually require replacing or fixing mechanical and electrical issues.

Depreciating asset - Leasing provides protection against a depreciating asset.  When you buy a car you own a depreciating asset which loses its value over time.  A leased car is still a depreciating asset, it’s just owned by the car company that leased it to you.

Cons of leasing a Car

Fees (early termination) - You may receive early termination fees if you decide to turn your car in before the lease ends.  When you buy, it’s your car until you decide to sell it.

More fees (wear and tear) - You have to pay fees for excess mileage or wear and tear fees when you lease.  These can add up depending on how well you take care of your cars.  Obviously, you don’t have to worry about these extra fees when you buy a car.

Car payments forever - You’ll always have a car payment when you lease.  However, at the end of your car loan you’ll be able to do with the vehicle as you wish.  You can continue to drive it or resell it.  With savings and money you receive from your car when you sell, you may eventually be able to work up to buying a car with cash.

No Equity - Once a lease has run its course, you’re not left with any equity.  In buying a car, it will most likely have some value when you’re done with making the payments on the loan.

Stuck with a contract – If the leased car is totaled in an accident you’ll be stuck with still paying the total lease agreement amount back to the dealership.  You’re stuck in the lease agreement until the contract expires.

Budgeting your miles – There are limits on the distance you can drive a leased car.  The agreement is typically 12,000 miles per year.  So keep in mind that you’ll have to pay a fee for each mile over the agreed upon amount when you turn your car back in at the end of the agreement.

Final thoughts

Overall, you have to weigh the pros and cons of driving a newer leased car against and saving more money in the long-run.  For some people, a new car every few years far outweighs buying and driving used and dealing with repairs and maintenance that come with owning long-term.

Keep in mind that if you do buy used and pay off your car, you’re probably going to need to save that car payment every month so that you can one day buy another car with lower or no payments.

If you take this approach, it’s highly likely that the equity in your car plus your savings over a 3 – 5 year period (after the car is paid off) will buy a newer car with cash.  Of course, you’ll still need to continue savings to help buy the next car.

Overall, there is much more flexibility in owning your asset and having paid for it with cash.

What do you think about leasing versus buying a car?  Were all the pros and cons covered in this article?

About Jason Price

Jason Price is a family man saved by grace, passionate about faithful financial stewardship (1 Cor 4:2 NIV), soccer and the Pacific sun.