Other than buying a home, a used or new vehicle is often the most significant expense for individuals and families. Even though there are different financing options when buying a vehicle, potential owners must decide between buying or leasing.
When purchasing a vehicle, you’ll own it outright when you’ve paid it off in full. For a car lease, the dealer would own the car, but they allow you to use it for a specific period in exchange for monthly payments. Once the lease is up, you must return the car or purchase it (if the contract allows it).
There are pros and cons of buying vs. leasing a vehicle. That’s why you need to consider all of your options before making a decision.
Pros of buying a car
Many people strive to buy a new or used car because you get the following benefits:
● You can keep the car as long as you want: When you own a car, you never need to worry about when the car needs to be returned. The longer you keep your car, the less you’ll likely pay since you won’t need to worry about upgrading every few years. The money saved can be used for other expenses.
● No limits: When you own a car, you don’t need to worry about any mileage limits like you do with a leased vehicle. You can drive it as much as you want in any given year and not have to worry about any overage charges. In addition, you won’t need to worry about any wear-and-tear charges that a dealer might try to add if you leased a car. Of course, you should try to keep your car in good condition since it’ll cost you less in repairs.
● You get to make the decisions: As a car owner, you can choose when to schedule maintenance. You can also choose to delay any non-critical repairs. Plus, once you’re ready to upgrade, you can trade in or sell your vehicle. This can put money back in your pocket.
Cons of buying a car
Despite the obvious benefits of buying a car, there are some downsides to consider:
● You’re responsible for everything: Even though you may intend to keep your car for a long time, things happen. You’d have to pay for the maintenance, which can get expensive once the warranty is up. You may also see increased costs as your car gets older.
● Depreciation: As soon as you drive your vehicle off the lot, you could see the value depreciate by 5 to 10%. While this may not matter to some people, some owners may still be shocked at how little value is retained when trading in or selling their cars later. With leases, since you don’t own, the depreciation is none of your concern.
● Higher monthly costs: Generally speaking, owning a car will cost you more every month compared to leasing. That’s because you’d be purchasing the vehicle outright, whereas, with a lease, you’ll eventually return the vehicle.
Benefits of leasing a car
Leasing a car instead of buying is worth considering for the following reasons:
● You can change vehicles every few years: Since leased vehicles typically have short terms, you can upgrade your vehicle every few years. This is ideal for people who like trying out different cars or always want to be seen in the latest models. It also gives you flexibility since you’re not committed to a single vehicle.
● It’s cheaper in the short term: In most cases, leasing a vehicle is cheaper than buying. This is great for anyone with limited cash flow but needs a vehicle for their daily lives. That said, leasing in the long term could cost more since you don’t own anything at the end unless you opt to buy the vehicle.
● Lower repair costs: In the first few years of car ownership, repairs are limited since you’ll be covered by the manufacturer’s warranty. However, when cars get older, maintenance costs can add up. With leased vehicles, repair costs are less of a concern since you can return the car after a few years.
Cons of leasing a car
There’s no denying the benefits of leasing a car, but you also need to consider the cons before committing.
● You don’t own it at the end: Unless you opt to buy out the vehicle when the lease is over, you won’t own anything. This would mean you need to take on another lease or come up with the funds to purchase the car. In both cases, you could end up spending more than if you had bought your vehicle outright.
● Mileage restrictions: When leasing a car, there are typically annual mileage restrictions. For example, you might be limited to 15,000 kilometres a year. This may not matter when you sign your original lease, but if you move or get a new job, you might have to travel further. Going over your limit could cost you a fair amount.
● You must return the vehicle in good condition: Every auto lease allows for normal wear and tear during the term of your lease, but that’s open for interpretation. Talk to your dealer before signing to find out what’s considered normal. Any excess damage would require you to pay for potentially expensive repairs.
Barry Choi is a Toronto-based personal finance and travel expert who frequently makes media appearances. His blog Money We Have is one of Canada’s most trusted sources when it comes to money and travel. As a completely self-taught, do-it-yourself investor with no formal training, he makes money easy to understand for all Canadians. His specialties include personal finance, budget travel, millennial money, credit cards, and trending destinations.
Barry Choi is a paid spokesperson of Sonnet Insurance.