Home > Ask Gary > Ask Gary: Buy or lease – which is better?

Ask Gary: Buy or lease – which is better?

One question I hear frequently from customers is, “Is it better for me to buy or to lease?”

The first answer in every case is, “That depends.” Because the best answer, the one that will make you happiest and be most economical in the long run, is the one that fits your personality and preference.  But just as we can help you figure out which vehicle is right for you – two-seater, sedan or SUV – we can also help you choose the best financing option.

Think about it.  Do you enjoy having a new car every couple of years because you don’t want to worry about big repair bills?  Or do you take pride in topping 250 thousand miles in a 10-year-old car – because long-term savings are most important to you?  Or are you like most people, at neither of these extremes, who simply hold onto their cars for 3-5 years and drive 50-70 thousand miles – and look for a new car when your lifestyle changes?

If you’re closest to the first scenario, leasing may be your best option, because the short-term monthly cost of leasing is typically a lot less than the cost of buying.  As much as 30-60% lower, because you’re only paying for a small portion of the vehicle’s useful life – not all of it, as is the case with buying.

If you plan on keeping your car for a long time, buying is probably your best option, since you’re spreading the total cost over a longer term. So you may want to buy a car and drive it for as long as it survives — or until the cost of maintenance and repairs begins to exceed the cost of replacing it.

If you’re in the middle scenario like most of us, the medium-term costs of leasing of buying and leasing are about the same.

So how is leasing different than buying? Why are lease payments less?  What are my obligations at the end of a lease?

When you lease, you pay only for the part of the vehicle’s value that you “use up” by driving it.  For example, if you lease a $20,000 car with an estimated resale value of $13,000 after two years, you only pay the $7000 difference. That’s why the payments for leasing are lower.

A vehicle’s resale value at the end of the lease is based on the length of the lease and the estimated number of miles you expect to drive.  Naturally, a shorter term and fewer miles means a higher resale value – and the lowest lease payments.  But leases can be structured to fit just about any need – up to four years and 100 thousand miles or more – though at the end of the range, lease payments can become less attractive compared to buying.

I like to say that leasing provides you with more options than obligations.  At the end of a lease, your only obligation is to hand over the keys – provided you’ve taken care of the vehicle and haven’t exceeded your mileage estimate.  Wear and tear beyond normal levels or excess mileage can result in expensive fees, so make sure to track your mileage and keep up on the maintenance if you do opt for a lease.

One of the most important options you have with a lease is buying your vehicle at the end of the term.  If your vehicle ends up being worth more than originally estimated when you signed the lease – because you drove less than anticipated or the market changed – you could buy the car for less than the current market value, or apply this equity toward the lease or purchase of a new vehicle.

You’re also protected on the downside with a lease.  Remember when gas prices skyrocketed to over $4.00 per gallon a couple of years ago and the values of large SUVs dropped drastically?  If you had purchased one of these large SUVs and tried to trade it in after 3 years, you were looking at a substantially lower value than you expected.  If you had leased the same SUV and the guaranteed future value for your purchase option was, let’s say $18,000, but the current market value when the lease expired was $12,000 — you were very happy to just hand over the keys and let the bank take the $6,000 loss.

So, which is better, lease or buy?  Again, it depends on what’s most important to you.

If you enjoy driving a new car every two or three years, want lower payments, like having a car always under warranty, keep up with maintenance and drive an average number of miles — then you should probably lease.

If you don’t mind higher payments up front, like the idea of ultimately “owning” your car, can handle minor repairs yourself or are willing to pay for them, like to customize your cars or drive a lot — then you should probably buy.

Whatever your choice – we can help you find the car and financing option that suits you best.  Come in anytime and let us show you how.

– Gary

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