Buying vs. leasing: considerations for the savvy car shopper

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April 4, 2019
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Do you want to drive the same sedan, truck or SUV for up to 10 years or switch vehicles every two or three years? The decision to buy or lease a new car can affect your finances and lifestyle, and it’s all about whether you want to be in it for the long or short term. The best plan of action is to consider the pros and cons of buying and leasing before you begin the car-buying process.

When you purchase and finance a vehicle, even though you may pay a higher monthly payment over the term of the loan than you would with leasing, the vehicle is yours once it’s paid off. Also, you can make modifications to the vehicle’s interior and exterior, drive unlimited miles, and choose different levels of insurance coverage.

In contrast, leasing is similar to renting the vehicle for an extended period of time, typically two to three years. While your monthly payments are usually lower when you lease versus buy, you must abide by the lease terms, you won’t own it at the end of the lease, and you will be required to return it to the lessor, unless you opt to purchase it.

Why choose to buy?

In an analysis by Edmunds, consumers who are leasing the most popular vehicles and want to lease the same car again could pay up to 26 percent more in 2019, and more than $1,600 over the life of the lease on average. This means it might be time to consider buying. There are plenty of resources out there to guide you through the buying process. Plus, many financial institutions, like Navy Federal Credit Union, have advice online to help you get the best deal on your car. There are other advantages to buying.

“It’s simpler to budget when you own a car because the main costs are your down payment, maintenance, insurance, and monthly payment on a loan,” says Joe Pendergast, vice president of consumer lending at Navy Federal. “Once the loan is paid off, you will have more discretionary income to put towards your savings or paying off other debt.”

The longer you expect to keep your car, the more beneficial it is to purchase. According to a recent Navy Federal survey, 39 percent of respondents keep their car between six and 10 years, followed by 33 percent keeping their cars three to five years.

Why choose to lease?

The biggest advantage of a lease is the lower monthly payments as they are based on the depreciation value of the car over time, not the sticker price. Then again, you’re only renting the car, so it’s a trade-off.

“If you don’t carefully comb through your lease agreement, you may face unexpected charges, such as wear-and-tear, excess mileage and lease termination fees, which can really add up” says Pendergast.

While leasing is typically a short-term commitment, it’s a full commitment. You will only have the car for your lease term and need to keep it in tip-top shape. Keep in mind that if you move duty stations, particularly to one overseas, you will not be allowed to take a leased vehicle.

Which option is right for me?

People usually think of their commute in terms of minutes, not distance. Map out your regular route to see how far you are actually driving on a monthly basis. If your commute is longer, or you drive frequently for work or travel, you may put more miles on a car than a lease allows. In that sense, buying would be a better option.

A lease may be a better fit for your lifestyle if you’re an infrequent driver or have a short commute. There shouldn’t be any major repair costs because of vehicle warranties from the dealer, but be sure to check with the dealer and read the fine print as the warranty terms can vary. You may have the option to purchase a leased vehicle once your term is up, which is something else to think about.

Before deciding to buy, contact your financial institution. Getting pre-approved for an auto loan will boost your purchasing power and simplify the negotiation process. If you decide to leasing is the way to go, thoroughly read the agreement. If it sounds too good to be true, it probably is.

Ultimately, your budget should be your guide during the entire process. With a firm grasp of what you can afford, you will able to find the best deal for you.