Leasing vs. Buying a New Car - Comparing the two major finance choices
The choice between buying and leasing is often a tough call. On the one hand, buying involves higher monthly costs, but you own an asset—your vehicle—in the end. On the other, a lease has lower monthly payments and lets you drive a vehicle that may be more expensive than you could afford to buy. But, you get into a cycle where you never stop paying for a vehicle. With more people are choosing a lease over a loan than they did just a few years ago, the boom in leasing isn’t stopping anytime soon. Choosing It, Insuring It, Driving It
Get everything you need to know when it comes to your vehicle.
Buying a vehicle with a conventional car loan is pretty straightforward: You borrow money from a bank, credit union, or other lending institution and make monthly payments for some number of years. A chunk of each payment is put towards paying interest on the loan, and the rest is used to pay down the principal. The higher the interest rate, the higher the payment. As you repay the principal, you build equity until—by the end of the loan—the car is all yours. You can keep the car as long as you like and treat it as nicely—or poorly—as you want to. The only penalties for modification or abuse could be repair bills and a lower resale value down the road.
As car prices rise (now averaging over $38,000) and buyers start to demand the latest safety features that are available only on newer cars, leasing a vehicle has become a mainstream alternative to buying. With a lease, buyers make a monthly payment to drive a new car for a set term. That payment is often less than the monthly cost of financing a new vehicle, but buyers must return the car at the end of the lease term.
With more people than ever working from home, the mileage restrictions on a lease may not be a factor for a lot of shoppers. Quite the opposite: Many might find they don't use the miles they have paid for.
The predictability of the payments and ownership costs (no expensive repairs when under warranty!) has its appeal. However, life can be unpredictable, as we all learned in 2020, and a lease has less flexibility than a purchase.
To find out whether leasing or buying is right for you, we take a look at the pros and cons.
