Should You Lease or Buy a Car: Which Saves More Money?

Often a topic for good discussion and some friction is the question of leasing versus buying a car.  While there are many considerations, often you’ll hear people make a strong argument towards leasing because a car is a depreciating asset.  It loses value as the clock ticks.  So, some will question why you would ever want to spend so much money on something that loses its value.

Rather, the question we might consider asking is which option is a wiser decision from that of a financial steward’s perspective?  This perspective is focused on managing that which belongs to God wisely.  In this case, the resources being managed is the money required to meet the costs for a car or transportation.

We can answer the question better if we look at the pros and cons of both approaches and consider them next to each other.  Then, we’ll look at a summary from the results of analysis conducted by Edmunds.com.

Pros of leasing versus buying a car

Less cash

There is typically less money tied up in a lease.  You typically only need cash to pay the leasing fees.  Whereas buying a car typically requires a larger cash outlay for a down payment.

Depreciating asset

Leasing provides protection against a depreciating asset.  When you buy a car you own a depreciating asset which loses it’s value over time.

Lower payments

Sometimes there are lower monthly payments depending on which type of car you choose to lease.  Buying a new car is typically more expensive each month because of the payments and finance charges.

Cons of leasing versus buying 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 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.  At the end of your car loan, however, you’ll be able to do with the vehicle as you wish.  You can continue to drive it or resell it.  With savings and what you receive from your car, you may eventually be able to work up to buying a car with cash.

Equity

Once a lease has run it’s 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 all the payments.

Which approach saves more money?

If you’re interested in saving money, buying a car is definitely the best option.  According to an analysis at Edmunds.com, buying a car whether it is new or used  is more economical than leasing a car.

They did an interesting study in comparing the costs associated with buying a new car, used car, or leasing.  The used car scenario looked to be the best, leasing came in second  and buying a new car appeared to be the most expensive initially.

But, the study points out the people who bought cars own them and can benefit from the value in their cars.  They can benefit by continuing to drive them or reselling them. The person who leased the car had no equity. So, once they figured the value of the cars back into the new and used car costs, a different result was revealed.  Leasing became the most expensive in the long-run!

Final thoughts

In my opinion, deciding to lease versus buy boils down to whether you’re interested in saving money, or  focusing on managing your resources as wisely.

But some will still argue they want to lease because they enjoy driving new cars, they will just plan or budget a car payment forever, or they don’t have to worry about car maintenance.  These are silly reasons to lease considering the amount of money lost over time.

Many people are looking to minimize the money they spend on cars each month to contribute towards their financial goals.  Believe me, it is a great feeling to pay off a car loan and know that you can repurpose that money to save towards emergencies or build a car fund to one day purchase a car with cash.

What do you think about leasing versus buying a car?

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