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Buying a New or Used Car vs. Leasing a Car
Any buyer in the market for a new car faces a big decision to either buy new or used, or consider a lease. After all, buying a new car is the second biggest purchase people will ever make in their life – after a home purchase.
To support you through this critical stage of the process, we’ve compiled the pros and cons of leasing versus buying a car. It will help you decide on which financing decision is right for you.
Leasing a Car
PROS:
- Covered by warranty. While under the lease, you typically have warranty protection, which can generally last for the first 3 years or 36,000 miles.
- Lower monthly payments. One of the perks of leasing a car is the lower payments than if you were buying a new vehicle.
- No upfront sales tax fees. In most states, the sales taxes are already included as part of your monthly payment, so there’s nothing to pay up front.
- No depreciation concerns. With leasing, you are only renting from the dealer for a certain length of time. In other words, you only pay for the use of the car until the end of the agreement, instead of its full depreciation cost.
CONS:
- Penalties for excess mileage. This penalty can leave you with a large bill to pay at the end of the contract if you accumulate a lot of extra miles.
- Excessive wear and tear fees. If you return the car in poor or damaged condition, most leasing companies will charge you a “wear and tear” fee.
- Early lease termination fees. You may pay a penalty for ending your lease too early.
- Higher insurance premiums. Most leasing companies require a higher insurance premium because they want to make sure the car is well covered in case of an accident.
Buying a New or Used Vehicle
PROS:
- No mileage limits. When you buy a car, you can rack up as many miles as you want without worrying about extra fees.
- Sell or trade-in the car anytime. Once your auto loan is paid in full, you can do whatever you want with the car. If you want to sell the car or trade it in at its current market value, you can certainly do so. Pricing will depend on the mileage and condition.
- Freedom to customize/modify. You can personalize the car to your liking and create a better driving experience by adding to its design.
- Lower insurance costs. Owning the car allows you to control your coverage options and get a cheaper insurance rate.
CONS:
- Higher monthly car loan payments. You’re going to spend more each month when you buy a car rather than lease one.
- Post-warranty maintenance expenses. Once the car goes beyond the warranty period, the expenses for maintaining and repairing your vehicle are your responsibility.
- Depreciates over time. The longer you own the car and the more you drive it, the more value it loses over time.
- Large down payment. If you decide to finance a portion of the purchase purchase, you may have to add a cash down payment. A shorter loan term can also mean a larger down payment and higher auto loan rate.
- Long-term maintenance costs. Owning a vehicle comes with the responsibility of regular maintenance to keep it in tip-top shape.
Unpredictable resale value. When you do decide to sell your car, there are numerous factors that can affect your car’s resale value. Those include the car’s mileage and condition, plus the time of the year, and even the state of the economy.
If you decide to buy a car, your next step involves determining whether it is best to buy a new or a used one. A shiny new car might be appealing, but would buying a used one be the smarter choice in the long run? Here is a quick guide to find out which is right for you.
OPTION #1: Buying a New Car
PROS:
- The latest features. New cars are equipped with the latest safety features and fuel efficiency standards.
- Reliability and warranty protection. New cars have good reliability records and come with the manufacturer’s warranty.
- Attractive financing deals. Many car manufacturers and auto dealers offer financing programs with low interest rates (or even zero interest) if you have good credit.
- Free roadside assistance. If your car breaks down, free roadside assistance is a convenient perk for emergencies like flat tires, dead batteries, fuel delivery, and towing.
CONS:
- Expensive. New cars are generally more expensive than used ones.
- Depreciation. Depreciation will slash a lot of the value of your car, especially in the first couple of years. Also, new cars depreciate faster than their used counterparts.
- Higher insurance pricing. Auto insurance increases for new cars due to the higher replacement cost.
OPTION #2: Buying a Used Car
Pros:
- Cheaper to buy. The biggest advantage to buying a used car is the price.
- Available warranties. A certified pre-owned vehicle from a dealer will give you a warranty that extends the manufacturer’s original warranty.
- Cheaper to insure. Paying cash for a used car could also mean spending less on car insurance.
Cons:
- Limited selection. Finding a used car with the exact features you want can be challenging.
- Higher mileage. Used cars are likely to have higher mileage and a reduced life span.
- Fewer consumer protections. Even if you purchase a defective vehicle (also known as a ‘lemon’), your state’s lemon law will only apply to a certain model year and mileage.
The decision to lease a new car rather than buy a new or used one depends on your priorities. If you enjoy driving the latest models but do not have the credit or money to purchase a new car, leasing may be your best option. If you plan to own your vehicle for the long haul, and want to modify it or put a lot of miles on it, buying one will make the most sense.
Whether you choose to lease or buy a car, you can walk away with the best deal by taking note of these key factors ahead of time.
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