Leasing Versus Buying a Vehicle
Leasing Versus Buying a Vehicle
So, you found your dream car and now you’re asking yourself how you want to pay for it. The decision to buy or lease a vehicle depends on your own individual needs and other monthly costs, so it’s important to consider your options carefully before jumping into anything.
We at Bennett Toyota are here to make sure you have all the information you need so that you can decide if buying or leasing is the best option for you.
What is Leasing?
Leasing a car means you don’t pay the full value, rather you only pay for the depreciation of the vehicle during the term of your lease, plus interest and fees. After the term ends, you must return the car to the dealership and decide whether to walk away, buy it, or lease a new car.
Fast facts: Leasing a car
- Lease terms usually last 2 or 3 years (can be negotiated with your dealer)
- Lease contracts have mileage limits, and if you exceed them then you must pay an excess mileage penalty
- You can’t customize your vehicle because it must be returned in the condition it left the showroom, minus normal wear-and-tear
- The dealership decides what “normal wear-and-tear” is for the term of your lease, and if your vehicle does not fit those standards, then you must pay excess wear-and-tear charges
- If you end the lease before it expires, the early termination fees due upfront may be just as costly as sticking out the contract
- There is a possibility of lease equity, which is when your car is worth more at the lease-end than the buyout that was established, so you can use the difference towards a new lease or purchase
- Important Terminology:
- Capitalized cost (cap cost) is the full price of the vehicle
- Residual cost is the vehicle’s expected value at the end of the lease period
- Money Factor is the rate of interest
Pros of Leasing
- Option of new car every few years
- You get to drive the latest safety and driving technology, with potentially better fuel economy
- Lower monthly payments than a loan
- You will always be covered by the factory warranty during your lease
- Lower (or no) down payment
- At the end, you just drop it off at the dealership. No hassle of selling or haggling your old car’s value
Cons of Leasing
- You don’t own it - you must return it, and if you decide to keep leasing, you will always have a monthly payment
- Mileage limitations
- Excess wear-and-tear charges
- You can’t customize it
- Early termination fees are very costly
- No cash to use for your next lease or purchase. In fact, you may be paying even more charges and fees when you do return it
Although the lower monthly payments of a lease may seem attractive, it might actually end up costing you more than buying would in the end. You must consistently maintain the condition of the vehicle and abide by the many contract terms, or you’ll be facing steep penalties and fees. Plus, you won’t make anything back when you return it to the dealership like you would if you were to trade-in or sell a purchased vehicle.
Some helpful tips to avoid extra costs are questioning what “normal wear” means to your car dealership, not procrastinating on maintenance, keeping a close eye on your mileage, and studying the lease terms. Essentially, if you want to lease, you have to be diligent. If that isn’t you, maybe buying would be a better option.
What is Buying?
Buying a car means you pay the entire negotiated price of the vehicle, and therefore you own it. You may pay in cash, in financing, in the value of your trade-in, or a combination of them all.
Fast Facts: Buying a Car
- You can buy a car in cash (plus your trade-in value, if applicable) and it will immediately become yours, or you can get an auto loan
- If you finance, there is still a sizable down-payment you must make on the car
- Auto loan terms usually last between 2 and 8 years, which can vary your monthly payments to what you can afford
- The lender will hold the title of your vehicle until the loan is paid off
- If you keep the vehicle for many years, the factory warranty will eventually run out and you will have to pay for repair costs out of pocket
- You can build a lot of equity if your car payments outpace the depreciation rate of the car (whereas those who lease never have equity in their vehicle)
- Since its yours, there is overall more flexibility and less restrictions to worry about
Again, let's get practical. What are some pros and cons of buying a car?
Pros of Buying
- You own it - you can use the equity however you please and don’t have to worry as much about wear-and-tear
- No mileage limit
- Customize it however you want
- Once the loan is paid off, no more payments!
- You can build up trade-in or resale value
- Sell it whenever you want (no binding contracts or early termination fees)
Cons of Buying
- You’ll be driving the same car until the wheels fall off or you decide to sell - no new car every couple of years
- Higher down and monthly payments
- Unexpected post-warranty repair costs
- You pay interest on the entire loan balance
- You’re responsible for trading or selling your old car
- Uncertainty about the vehicle’s future worth
The Best Option for You
Are you pinching pennies or have tons of other monthly costs? Do you value being on the cutting edge of technology and trying new things every few years? Are you sparing in your mileage and use of your vehicle? Maybe leasing is the right option. But remember that your monthly payments won’t end in ownership. Instead, it will most likely mean another lease and more monthly payments.
Do you live in a crowded city, drive far distances, or have an overall higher potential to dings, bumps, and excessive wear and tear? Do you wish to customize your car or drive it for a long time? Are you willing to take on a sizable monthly expense? Perhaps think about owning your next vehicle.
We don’t have the magic answer for which option is the right one for you, but asking the right questions will bring you closer to finding it. Consider consulting with one of our sales and leasing specialists at Bennett Toyota to help determine what will work best with your lifestyle.
If you want to learn more about leasing or buying a vehicle at Bennett Toyota, don’t hesitate to contact one of our talented staff or visit us at our dealership located at 1951 Lehigh Street, Allentown, PA 18103.