Leasing Vs. Buying: Which is Financially Smarter?

There are some obvious benefits to buying instead of leasing. One clear advantage is having full ownership of your vehicle, which means you can do whatever you want with your car. This freedom is a big reason why people decide to purchase a car; you can add lots of miles to the car without getting hit with a penalty at the end. On top of that, you’re likely to to pay lower insurance costs for a car you own.

When you purchase a car, you don’t have to give the car back at some point like you must do with a lease. You’ll eventually pay off your vehicle too, which means you’ll ultimately avoid those fixed monthly costs eating into your wallet every month.

However, the higher monthly payments are part of the drawbacks to buying a car. Unfortunately, the cost of monthly payments when buying is often twice as much as you would pay if you were leasing. Plus, your new vehicle will rapidly depreciate in value. Once you factor in your interest payments, you might not actually end up with so much equity in your vehicle after all.

A car lease is a highly attractive option for many people. However, some people feel confused by what leasing actually means. In most cases, you are simply renting your vehicle for an extended period of time: usually between 36 and 48 months.

As already noted, the biggest reasons to lease are the lower monthly payments with little to no down payment. With a lease, you can also ensure the car you’re driving is almost always looking new since leasing is usually for three years maximum.

For business owners, leasing is often an especially great idea since you can deduct your leasing expenses from your taxes.

Leasing does carry some definite risks. Not only are there restrictions on your mileage — typically around 12,000 to 15,000 miles a year — but you must also return the vehicle in excellent condition. If you go over the mileage limits or your vehicle suffers from any minor damage, you could get hit with pretty high penalties. Higher insurance costs are also a factor you should take into consideration; nevertheless, the impact isn’t too extreme as long as you have a good driving record.

Ultimately, deciding whether to purchase or lease your car is a personal question. If you want the pleasure and freedom of owning a vehicle while having a little equity left in your car at the end, then buying is the way to go. If you like a new car every few years with lower monthly costs, then leasing is probably right for you.