My fiancée and I are trying to plan for our future, which can be difficult when it comes to transportation. Cars are costly to run and can have mechanical issues leading to more expenses. While my fiancée drives a newer car, my car is old and will need to be replaced within the next few years. Leasing is always a possible option, as is buying a used car. Both have advantages and disadvantages of course, which makes choosing a route a tough decision because there’s really no right answer.
Leasing: The Safer Choice?
Similarly to renting versus buying a home, leasing a car is paying for the use of the vehicle. The down side is that your payments are accumulating no value. The difference is leasers usually make a down payment for the car and have the option to buy for the depreciated value at the end of the lease term. The nice part about leasing is that if the car has any mechanical issues, you will not be on the hook for the payment. You can also just hand over the keys after your lease term is up to avoid any further hassle a potential hidden mechanical damage can cause your wallet.
The biggest danger with leases, though, is that the smaller upfront and monthly costs allow drivers to get a more expensive car than they can afford to buy. If my fiancée and I lease a car, we will have to keep in mind where we will be living. Lease terms include a certain number of miles a year, so we’d have to pay extra if we go over the set amount.
Buying: Better Long Term?
Buying new instead of leasing has significantly higher savings in the long term. If you can afford to buy new, you will most likely have a warranty to cover mechanical issues. Your down payment and monthly payments will be higher, but in the end, you are paying towards the value of the car. The speedy depreciation of cars makes this accumulation less significant than that of homes, but it is present.
My fiancée and I will not be in a position to buy new when the time to get a new car presents itself. So we are more interested in used vehicles. I have had some luck with cars costing less than $5000 over the past 8 years. These provide a small cost and can last for a number of years.
The problem with used cars is if they break down, you are on the hook for fixing them. If you buy a used car and the transmission blows within a month, you will have to tack on a large cost to your purchase.
Which is Best?
My fiancée and I will need to do more research before making our decision between buying used versus leasing. Leasing is a safer option in a sense that the cost are known, while buying used usually offer a better long term return. There are pros and cons to both, but which route do you prefer?
David’s Note: From a financial standpoint, buying used will almost always be a cheaper option than leasing a car. Leasing is a common choice in our society, but do know when you decide to lease that you are satisfying your desires by paying more than you need. The choice is yours, but consider your circumstances carefully before you take the plunge.
{ 9 comments… read them below or add one }
For me, it’s buying and keeping it for at least ten years. I take care of my things and have my car for nine years already. I bought it pre-owned, so I really have gotten my money’s worth. It’s in great shape, and I know what has been fixed or not. Having several years with no car payment has allowed me to do other substantial things with my money. I worked to pay my car off in 2.75 years and that was a good thing.
There aren’t likely to be mechanical issues in the beginning and even if there were, a new or used car warranty might cover them as well. I have never been a fan of leasing but you have to do what works for you.
I have always purchased my cars and then held onto them for many years – current model was purchased new in 2000 and just turned 180,000 miles! However with recent stratospheric repair bills I am contemplating leasing for the first time (just waiting for the next big repair!). Having the warranty to address anything that goes wrong along the way is very attractive as well as not having to come out of pocket with tens of thousands of dollars. And if I really like what I am driving I can purchase at the end of the lease. Hopefully I will have a few more years to think about it before I have to take action!
I’ve never seen the point in leasing a car. Buying a relatively new – used car – seems most viable to me. That is what I did in 2007.
The only possible advantage to a lease for just about anything is that a business may deduct fully any lease payments for things they use in their business. Even leasing office furniture may pay off financially. Otherwise, a lease, especially an auto lease, will cost you extra money. Unless you need to pretend success by leasing an expensive car above your means to buy, leases are generally a bad idea. In addition, when shopping to buy, bear in mind that a new car loses around a third of it’s value the second you drive it off the lot. For the budget conscious, let the original buyer take that hit, and buy a used vehicle for the book value.
This is absolutely right! Leases are for businesses, which can account for leases differently than people can. When you lease something as a business it is an off balance sheet arrangement, which is very good for companies that are already heavily levered. Also, as Bert says, the amortization of a lease helps a lot. Individuals do not have this advantage, so I say that individuals should most definitely buy a car, not lease one.
I’d rather lease a car – I can lease it for 2 years, and then just get a new one. Alternatively, buying it is definitely cheaper in the long run – but then again, by leasing it I can use the saved money towards my investments.
Leasing, you’re liable for any dents, dings, damage, tires, over milage when you turn the car in.
I am more comfortable using something that I own. Buying used cars provide some risk yet I make up by doing a lot of research first. Besides, it feels really great to purchase something for less yet with great quality.