As a financial advisor, I’m sometimes asked what my opinions are on purchasing vs. leasing a car or truck. Next to homes, vehicles are typically the second largest single household purchase. Edmunds forecasted that just within the month of December, 1,607,724 new vehicles would be sold in the U.S.
I have owned my car for 11 years now and am nearing the point of looking for a new one. I paid off my loan in five years and have enjoyed another six years of no car payments. While I chose to purchase, I do recognize there are various factors to consider that makes the decision unique for each individual. Which option you choose depends on your financial picture, preferences and how long you want to keep the vehicle.
First, let’s compare what should be considered when deciding to purchase or lease a new vehicle:
|Factor||Purchase vehicle||Lease vehicle|
|Credit||Varied. Scores Impact terms of loan. Easier to finance than a lease.||Higher requirements – excellent credit score needed.|
|Mileage||Unlimited||Limited to 10,000-15,000 mi per year. Charged per mile above limits.|
|Payments||Financing full price of vehicle can lead to high payments. Varies based on the length of loan term and down payment. No payments when the loan is paid off. Opportunity to refinance.||Down payment typically required although sometimes waived. Lower payment than loan since amount financed is less. Will have to enter another lease or purchase with continuous payments after lease term is up.|
|Ownership||After auto loan paid off, the title is owned by purchaser.||None. Restriction on use (no ride sharing programs, etc.).|
|Maintenance||Warranty on the vehicle for the initial years. After, expenses are out of pocket.||Typically covered with the lease or built in for predictable regular cost.|
|Flexibility||After loan is paid off, greater flexibility on selling at any time. Purchasing used vehicles for lower prices as an option.||Not able to customize car. Fewer financial options without ownership. Ease of trade in when lease is up with less hassle.|
For long-term financial health, owning a new or good, pre-owned vehicle is advised. Purchasing your vehicle outright or paying off a loan and keeping the vehicle for longer typically provides more financial freedom. In a few cases, leasing can be of financial benefit if having a new car every 2-3 years is important or if a vehicle will only be driven for a short period of time.
Whatever you choose, the best advice for financial health is to spend less than what you are told you can afford. And there is always room to negotiate for better terms when purchasing or leasing. Visit our “Resources” page on TriangleFSinc.com for a purchase vs. lease calculator and other valuable financial planning resources. And, of course, contact us if you’d like to discuss your financial questions. Until next month, be wealthy and wise!
Securities and Advisory Services offered through Harbour Investments, Inc. Member SIPC & FINRA.