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Buying or Leasing a Car – Which is the Better Financial Decision? Thumbnail

Buying or Leasing a Car – Which is the Better Financial Decision?

There are a few issues out there that get people really revved up with taking a position. Anyone who knows what they are is aware that once the given topic comes up, there are two choices: get involved or stay out of the fray. Buying versus leasing a car usually gets people to voice an opinion, as well -- and very strong ones at that. However, there is no clear right answer. That's because everybody's situation is different, and personal nuances often make one situation better than the other for a given person's needs. 

Those who lease will argue that buying a car involves higher upfront and monthly costs, and that if you plan to get a new car every few years anyway, it makes sense to lease instead. Those who prefer to buy will argue that when you buy, you get to own a tangible possession in the end, and that leasing gets you into a cycle where you never stop paying for a vehicle.

The idea of leasing a car might be advantageous for people who need to have a newer vehicle regularly. Salespeople, corporate and fleet managers, and others in similar positions often tend to prefer vehicles no more than three to five years old. The focus on a new vehicle keeps up an image for social needs, avoids major repair costs, and reduces the need for a full cost outlay on purchasing a vehicle.

The hitch to remember with leasing is that the car is typically more for local driving than high mileage use. Many leases limit mileage (12,000 to 15,000 per year is typical) and impose steep penalties if you exceed it.[1] On the other hand, if you are the type of person that plans to drive a new car every few years anyway and you don't need the car as an asset, leasing might be a good way to go.

A vehicle is often one of the most expensive purchases that a person will make in their life. Unfortunately, many people buy cars out of necessity. That frequently leads to being stuck with a car that isn't what the person ultimately needs or wants. Buying a car is most beneficial when a person wants to 1) have complete control of the vehicle, 2) get maximum value out of it, and 3) properly maintain it. If all three factors are a "yes," then a car purchase might make sense.

Nobody should buy a car with the idea that somehow the resale value will recoup most of what is spent in a few years. That's a full-blown myth. Due to markups, most cars lose a third of their value as soon as they are driven off the lot. Instead, car-buying can be ideal for those who expect to own and use their vehicles long after they've paid off their loans. It’s also a good idea for those who have enough cash available to fund the purchase and avoid interest costs associated with financing. It's important to pick a vehicle with a high-reliability record and performance history to maximize its long-term value.

Still not sure which way to go based on your current financial picture? Reach out to our team of experienced financial advisors to talk over the best options for you and your family. 

[1] Consumer Reports, 2017