Let’s get real, buying a car is a big deal, especially if you have never bought one before. One reason why buying a car is such a big deal is because cars ain’t cheap. In fact, they are pretty darn expensive. Typically, you have two choices when it comes to purchasing a car: Leasing or buying. Which option is more expensive?
Buying a car implies you paid full-price—or a negotiated price—for a car that you now own. Most of the time, this means spending more money at first, but you build equity in the vehicle over time. Leasing is the opposite. While you do not need to spend a lot of money at first to lease a car, you don’t gain equity, meaning you cannot sell it down the road. And if you go over mileage limits or are lax about keeping the car in good shape, you could spend more overall on fees and fines. Your budget matters most, which will tell you if you need to buy or lease.
Not everyone has the cash to splash on a brand-new car. A lease might be the best alternative option for those looking to own a car and save a little money.
Auto Financing Options
With historically high prices for new and used vehicles, most car shoppers turn to auto financing to drive home their dream car. Financing allows consumers to use down payments to offset the cost of monthly payments. This can either lead to lower monthly payments or a shorter amount of time that you will be making car payments.
Some auto dealers offer a no-money-down lease, which means you have nothing to pay at first. It’s a good option if you need a car before you’ve had a chance to save money for a down payment. But that comes at the cost of higher monthly payments, so be sure you’re budgeting for that every month.
Buying: More Money, More Equity
There are many benefits to buying a car outright. If you can find a car for a good price and you can afford it, then you should seriously consider buying. When you buy a car, you gain equity with every car payment, and you get to choose how to treat your car, and you can sell it at any time (even if you’re still making payments on it).
On the flip side, depending on how much you can afford, buying a car can put a serious dent in your finances. It can take a long time to save up enough money to buy a car with cash, and if you have a few dings on your credit report, you’ll pay more in interest.
Leasing: Lower Payments, Newer Car Options
Leasing is a great option for those who need a car but cannot afford one. There is nothing wrong with leasing, especially if you are confident you can make your monthly payments consistently. It’s a good way to rebuild your credit, plus you get to trade up to a new car every 2-3 years. And since you’re basically paying the cost of depreciation (rather than the full value of the car), you can drive a new car with a smaller down payment and lower monthly payments.
But there are some serious caveats to leasing. First, you won’t build equity, meaning you don’t own the car in any way, so you can’t sell it (and breaking a lease can be costly). Second, you’ll have to pay attention to how many miles you drive. Lease deals have mileage limits, and if you go over the limit you may have to pay for every extra mile you put on the vehicle. You may also have to pay a fee if you return the car in less-than-ideal condition (beyond reasonably normal wear and tear).
Buying vs. Leasing: What is More Expensive?
Well, neither is actually more expensive than the other. It all comes down to your financial situation and needs. If you have money to spend, you have more options, especially if you can pay cash and avoid financing altogether.
If you don’t have a lot of money, leasing is a good way to get a car with a smaller cash outlay. But if you prefer the flexibility that comes with owning a car, buying may be a better deal for you.
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