When it comes to car ownership and regular usage, there are two popular options—leasing or purchasing. Both of these alternatives have their own unique advantages and drawbacks. While leasing involves lower monthly payments and allows lessees to drive a different vehicle each term, buying a car helps owners build equity and save on insurance premiums. Evaluating the pros and cons of each option will help one decide whether to lease or buy their dream automobile.
Pros of Buying a Car
1) Ownership and control
Cars are expensive to buy upfront, which is why most buyers take auto loans to finance their purchases. Installments that the car owner pays for these loans help them build their equity in the automobile. Once the loan is fully repaid, they will have full ownership of the vehicle. Even during the auto loan repayment period, vehicle owners will have full use of the vehicle, allowing them to drive without mileage restrictions. In contrast, when leasing a vehicle, individuals will have to pay a penalty when they cross the agreed-upon mileage limits as per the agreement.
2) Freedom to customize the vehicle
Buying an automobile allows owners to modify their cars according to their will. Owners can transform their car’s appearance by changing its paint scheme, wheels, rear spoilers, dashboard, and other components. This is not possible when leasing the vehicle, as leasing companies look to preserve the automobile’s original condition and value.
3) Early termination
Buyers can sell the vehicle at any point while they continue to pay their loan. If required, buyers can use the proceeds from the sale to pay off the remaining auto loan balance. Buyers can also trade in their new vehicle or give it to a family member. Most owners prefer to drive their car for as long as it lasts without having to make any monthly payments once the loan is settled. This flexibility makes purchasing the car a better option than leasing.
On the other hand, in leasing, exiting the agreement early will lead to heavy charges and penalties. So, if a car owner is unsure whether they will keep their automobile until the end of their auto loan repayment period or lease agreement, purchasing it would be the best option for them.
Cons of Buying a Car
1) Depreciation
Cars are among the fastest depreciating assets in the market. According to a 2024 analysis, new cars tend to lose an average of $4,680 in value over the first 5 years (or after 75,000 miles of driving) due to depreciation. Luxury vehicles tend to lose value even faster. This rapid depreciation is the reason why many cars have poor resale value after just a few years of use.
2) Higher upfront expenses and maintenance costs
Typically, when buying a car, owners must make various expenses upfront. When they finance their automobile purchase through a loan, they will have to pay a down payment, which is typically around 1/5th of the vehicle’s purchase price. There are also monthly installment payments on auto loans, which are higher than monthly lease payments.
Additionally, many new vehicles are not covered by a factory warranty. So, their owners will be required to shell out cash for regular maintenance and to fix any damage that happens during this period.
Pros of Leasing a Car
1) Lower down payment
Typically, leasing a new vehicle involves lower monthly payments than buying it. Owners also don’t have to spend a lot on the down payment, especially when dealerships provide lucrative lease offers.
2) Expansive warranty coverage
Repairs and refurbishments are directly linked to vehicle ownership and daily usage. To reduce the financial burden of lessees, many dealerships offer significant warranty protection on their leased vehicles, typically covering the first 3 years or 36,000 miles of driving.
Additionally, people who lease vehicles do not need to worry about their depreciation or trade-in value during the lease period.
3) Option to change vehicles periodically
Many subscription and leasing offers from automobile companies include a clause that allows users to switch vehicles every year or every few years. While the costs and other charges will change accordingly, lessees can enjoy driving a brand-new vehicle during each lease term. It is important to note that only a few carmakers offer this option, and leasing is the way to experience it.
Cons of Leasing a Car
1) Severe mileage restrictions
Lease agreements generally involve mileage restrictions, which, when crossed, may impact the car’s value. These limits indicate the number of miles a lessee can drive their vehicle during the term without paying additional fees. This can be a deal-breaker for those who travel long distances frequently.
2) Higher insurance costs
To reduce their own financial risks, car dealerships that offer leasing services expect lessees to carry higher insurance coverage than if they owned the car outright. This means that people who lease cars tend to pay higher insurance premiums than those who own them.