Lease vs Buy: How to Choose the Best Car Financing Option

In the market for a new vehicle? You may already know what make, model and trim you want. But part of your decision-making also involves the pros and cons to leasing a car or buying it. The decision to lease vs. buy can be a tricky one, with many car financing options available. How do you know when to lease a car and when to buy it? Here are some factors to consider as you’re making your decision. 

When Does it Make Sense to Lease a Car? 

With a lease, buyers make a monthly payment to drive a new car for the duration of the leasing period, after which they return the vehicle. The payment you make on a car lease is often less than the monthly cost of financing a new vehicle, but you have to return the car at the end of the lease term and get a new one.  

Here are five reasons you might decide to lease a car.  

1. You Like Driving a New Vehicle Every 3 Years 

For some people, the appeal of regularly driving a brand-new set of wheels is strong. Or maybe you’re addicted to that new car smell. Perhaps a sleek sedan appeals to you now, but you know that in a few years, you’ll need more space for a growing family, such as an SUV. Whatever the reason, if you prefer or anticipate driving something new, leasing could be the best fit for you. 

2. You’re a Low-Mileage Driver 

There’s often a mileage limit on your leasing contract. So, if you typically log a low number of miles, between 10,000 and 15,000 miles per year, leasing a car might make more sense than purchasing one, since low mileage limits can lead to lower leasing costs. Just be aware that if you exceed the mileage listed in your contract, you could be charged a hefty fine at the end of your term. If you anticipate putting a lot of miles on your car, but you still want to lease, ask about pre-purchasing extra miles at the time of your contract negotiations. 

3. You Have Good Credit and Are Financially Stable 

If you’re in a comfortable financial position, leasing can be a good option. Once you sign the contract and drive your new vehicle off the lot, it’s like any contract: You are legally obligated to fulfill the financial terms associated with the vehicle. 

As long as you don’t decide you want to terminate your lease before it’s over, or experience difficulty making the payments, you’ll be fine. On the other hand, if you need to break the leasing agreement, you could face large penalties. When you’re leasing a vehicle, be prepared to keep your vehicle until the end of your contract. 

4. You Take Good Care of Your Vehicle 

As with renting a house or an apartment, you’ll be required to put down a security deposit on your leased vehicle, and you won’t get it back if the car is damaged at the end of your term. But maybe you have kids who are prone to spilling ice cream all over the seats, or you have trouble keeping your car scratch-free. If that’s the case, you may want to consider purchasing a vehicle instead. 

5. You Want a More Expensive Car 

Often, leasing a car means you don't have to put down as much cash up front. You'll also find that your lease payments are much lower than if you had purchased the car and gotten an auto loan. 

In most cases, your leased car is still covered by the manufacturer’s warranty, so you can also expect to spend less on maintenance costs. If you’re wanting an expensive car that you can’t afford to buy outright, this might be the option for you. 

Reasons to Buy a Car 

When you finance a new car, you may have higher monthly payments for the duration of the loan than you would with a lease. But unlike a lease, which requires you to return the car at the end of the term, buying a car means it’s yours when you finish paying for it. If you plan to keep the car for years to come, you’ll get to enjoy owning it outright once you’ve paid off the loan.  

Here are five reasons to buy a car. 

1. You Do a Lot of Driving 

The mileage limits of a lease can impede how much and how far you wish to drive. When you own the car outright, you’re free to drive as many miles as you want or need to without penalty. This is especially useful if you like to take road trips or have a long commute. 

2. You Have Enough Cash Saved Up for a Down Payment 

Typically, if you're buying a new car, you should aim to put down 20% of the new car’s purchase price. This means that if you’re buying a new car worth $60,000, you’ll want to put down at least $12,000. If you’ve got the money for a down payment, then buying the car and financing the rest of the purchase with a car loan might be the right choice.  

3. You’re More Concerned with Long-Term Value Than Upfront Costs 

If you buy a car, you may have to make higher monthly payments for a handful of years, but the payments end when the loan is paid off. Conversely, if you continuously lease a car, you’ll always have monthly payments — you’ll never reach a point where you don’t have to pay to keep driving the car. 

4. You’re Well-Versed in Car Maintenance and Upkeep 

As cars age and parts wear out, the mechanic bills tend to increase. It’s important to remember, you’ll need to budget for repair costs as the car ages. If you’re handy under the hood and committed to properly maintaining your vehicle, this shouldn’t be a problem. On the other hand, leasing can make it simpler to get the car serviced: just bring it back to the dealer. 

5. You Don’t Mind Driving an Older Car 

New cars can lose 30% of their value in the first two years of ownership and continue to depreciate after that. But if you’re the type of person who buys and keeps a car for years, then depreciation shouldn’t matter. In the end, it is cheaper overall to buy a car and hold onto it for as long as possible. 

Safeguard Your New Car

When it comes to leasing or buying a car, you have a lot of options. Rest assured that when you choose auto insurance with Farm Bureau, you are choosing a company that offers a range of options to help keep you safe, both on the road and off. Talk to Farm Bureau to learn more.