One of the big questions you need to answer when it's time to get a new set of wheels is: lease or buy? There are pros and cons to each option, depending on your goals and what you want from your car, but it's important to understand that leasing and buying aren't the same thing. Both options usually include an upfront payment and some sort of monthly payment, but what happens to the car in the long run is different when you lease compared to when you buy.
What Happens When You Lease a Car
According to the New York Times, leasing a car is becoming a more and more popular option for consumers. In 2014, 16.5 million new cars were sold in the US. That same year, around 27 percent of people in the market for a new vehicle decided to lease their car, an increase of 5 percent from 2012.
Perhaps the biggest difference between leasing and buying a car is who owns the car in the end. When you lease a car, the dealership retains ownership of it. You're making monthly payments for the privilege of driving the car around. At the end of the lease term, which is usually around three years, you return the car to the dealer. Some leases also give you the option of buying the car at the end of the lease term, but many people simply decide to trade in their leased vehicle for a newer model.
Since a leased car isn't your own vehicle, you don't have full say over what you can do with it. As US News and World Reports points out, there are often mileage restrictions placed on leased vehicles, meaning you can't drive more than a certain amount (often between 9,000 and 15,000 miles) annually. Going above that limit can lead to a per-mile overage fee when the lease is up.
What Happens When You Buy a Car
When you buy a car, the minute you sign all the paperwork and drive off the lot, the car is yours. You can drive it as much as you want, wherever you want. You can own the car for a few years or for decades.
How you pay for a car you buy depends on your current financial situation. You can take out an auto loan, and make monthly payments on the car for five years or so. If you have enough cash saved up, you can pay for the car upfront and not have to worry about making additional monthly payments. If you do have a loan, once the entire amount is paid off, you're free and clear. You own the car and don't have to worry about making any more payments on it.
One of the biggest drawbacks of buying a car is that the car starts to lose value that minute you drive away in it. Depending on how much you borrowed to pay for the car and how quickly it depreciates, you can end up underwater on the car loan, meaning you still owe more on it than the car is actually worth. That can make selling the vehicle difficult, as you might have to pay more out of pocket to get rid of the car. You also might have issues if the car is damaged or stolen if you are still making payments on the loan and its value has fallen, as Consumer Reports noted.
Lease or Buy: Which Is Right for You?
When it comes down to the decision to lease or buy, it really all comes down to what you want out of your car. If you want the newest model every few years, but don't want to go through the hassle of buying a car and worrying about its value depreciating, it's better to lease. If you're hoping to hang on your car for years to come or even to pass it down to your kids when they're old enough to drive, buying the car is typically the better option.
How much money you have on hand can also influence whether you lease or buy. While both options usually require some amount of money down, the amount you might have to put down upfront is often lower when you lease. You might also get a lower monthly payment on a lease, compared to a car loan. You usually have the option of buying the car at the end of the lease, so it's not as if leasing a car instead of buying one will keep you from ever being a car owner.
If you are ready to buy a car and need financing to pay for it, Coosa Valley Credit Union is here to help. Contact us today to learn more about our car loan options.