So you’re ready to purchase your next new car, but you need to decide how you’ll finance it. You have a number of options, including an outright purchase or a lease. Both options have their benefits and downsides, and you should have a good idea of what those are before you make a decision. Here, we’ll describe the pros and cons of buying and leasing so that you’ll be informed next time you visit a dealership.
When buying a car, you can either pay cash, and own the car outright, or obtain a loan that you’ll pay back (with interest) in monthly installments. Either way, once the car is paid off, you will own it and will no longer have monthly payments. This is the ideal option for anyone looking to keep their car for more than a few years, and especially if your goal is to someday have no car payment at all. Additionally, you can choose to sell or trade-in your car at any time, and the cash value is yours to use how you’d like. Finally, buying your next car is probably best if you commute long distances or are especially hard on your vehicles, as leasing limits the number of miles you can drive and requires that the car remain in like-new condition for the duration of the lease.
New car shoppers who choose to lease their vehicles almost always have lower monthly payments, since they are only paying for the depreciation during the lease term. When the lease term is over, you can choose to keep the car (by paying it off in cash or financing like a car purchase), or simply turn it in for a new lease. Leases are ideal for car owners who tend to purchase a new car every few years anyway, and plan to have a car payment every month.
Typically, shoppers who purchase their new car will owe higher monthly payments than those who lease. You'll also need to handle selling or trading in your vehicle when you’re ready for a new one.
Lessees are required to limit the number of miles they drive (often 12,000-15,000 per year) and maintain like-new condition. Also, an early contract termination can result in large fees, so you’ll want to be sure that you’ll be able to afford the payments (and want to keep the car) through the end of the contract.