Owning your own vehicle can dramatically increase the number of options within your life, both professionally and personally. However, buying a car is not a small matter, and it is reasonable to ask if doing so is the best option for your needs and budget. Fortunately, buying a car either outright or through an auto loan is not your only option. Leasing a car can, in some situations, be drastically more affordable and the most financially sound option. Each approach has its own batch of pros and cons, so the answer to the question of leasing vs. buying will require a little bit of explanation.
The advantages of buying a car stem from the fact that you truly own your vehicle; it is yours to do with as you please. As long as you pay off your car loan, you can keep the vehicle as long as you want, drive as much as you want, make whatever modifications or changes you want, and so on. If you wish to sell your car before you finish paying off the loan, the sale amount can be put towards repaying the debt as well. If you wish to trade in for a new model, the loan can be transferred as well.
The disadvantage of buying a car is that it is a more significant investment. Car loans are based on the entire value of the vehicle and, depending on make and model, can also come with a hefty down payment. The other issue is that the car will depreciate over time, which impacts how much value you can get should you trade or sell down the line.
The main advantage of leasing a car is that it can be a significantly more affordable option. A car lease is based on the value that the vehicle loses during the lease period, which typically lasts three years. If a car is worth $30,000 today but would depreciate to $18,000 after three years, you would be paying a lease of $12,000. This means that the car’s future value is not a concern for you. At the end of a lease period, you usually have the option to either buy out the remaining value on your car or you can begin leasing another vehicle and thereby enjoy a constant “new car” excitement. Leases also include a repair warranty so you do not need to pay for most forms of maintenance or basic care.
Leasing offers you significantly less control over your vehicle since the contract requires you to return it in a sellable condition. This usually means that your leasing terms will rack up penalties if your mileage is over a certain amount, there is deemed to be “excessive” wear and tear, and you will have to pay to remove any modified elements or custom parts.
Leases are also less flexible and are fixed contracts with hefty exit costs if you want to cancel early—sometimes to the point that you end up paying close to the same amounts either way. What you do at the end of the lease’s duration is also an issue. You can either lease another car, thereby entering a perpetual cycle of payments, or you can buy the vehicle, which still ends up costing more overall than if you had done so originally. You also do not get any value from a leased car—it can’t be counted as an asset and any repairs or upgrades you make are lost upon returning the vehicle.
Which Is Right for You?
As mentioned at the start, the question of leasing vs. buying is going to depend on personal factors. If you expect to drive more than 12,000 to 15,000 miles per year, keep the vehicle for more than three years, or value the flexibility to sell or trade, buying a car and financing through an auto loan will be the most financially sensible option. If you drive less than 12,000 to 15,000 per year, do not intend to keep the car for more than three years, and get a kick out of having the latest makes and models, a car lease will be the preferred scenario.
Use LUSO Federal Credit Union for Your Car Financing Needs
LUSO Federal Credit Union is a not-for-profit, member-owned financial cooperative dedicated to providing members with quality financial services and products. We at LUSO pride ourselves on serving the financial needs of our members and helping them get the financing needed for important milestones like buying your first care. Our car loan services are available in Wilbraham, Ludlow, Springfield, Chicopee, Westfield, and Hampden County, Massachusetts.
Feel free to contact our Ludlow branch toll free at 1-844-LUSO-FCU or our Wilbraham branch at 1-800-808-5876.