The pros and cons of leasing vs. financing a car
Are you excited to get behind the wheel of a new vehicle? Are you wondering whether to lease vs. buy? With so many options on the market, choosing the right vehicle—and the right financing option—can be challenging. Dealer offers, personal preferences and car resale values also play an important part in determining your best course of action.
But, worry not. We’ve gathered the pros and cons of leasing vs. financing a car to help put you in the decision-making driver’s seat.
Is leasing a car a good option?
Leasing may be a good option, but there is a lot to consider. Leasing a vehicle does have some limited benefits, such as a potentially lower monthly payment. An average leased vehicle payment is $487 a month. In comparison, the average monthly payment is $548 for a new car purchase.
The difference: $61 a month.
However, this small difference has big long-term implications. Opting to purchase a vehicle helps you build equity. Should you choose to sell your vehicle in the future, the sale value can be applied to your new purchase. Considering auto prices are at a record-high—averaging $36,800 a vehicle—and that buyers can expect to pay $1,600 more per lease than in 2016, building equity to put toward a down payment makes future vehicles more affordable and keeps more money in your pocket.
Leasing requirements and limitations
When you finance a vehicle, you agree to pay for the entire value of the vehicle and eventually own it. When you lease a vehicle, you pay for vehicle depreciation and do not own it. Essentially, the monthly lease payment covers the lost value of the vehicle during the time of your contact and, at the end of the lease agreement, you return the vehicle to the dealership.
It’s important to thoroughly read the terms of a lease agreement, as they often contain specific requirements and limitations such as:
- Mileage restrictions. 9,000 to 15,000 miles per year is the typical allowance. Additional charges apply if you exceed the agreed-upon distance.
- Wear fees. While some wear is expected, additional fees are applied at the end of the lease if the vehicle condition exceeds the expected wear and tear. It’s important to read the lease closely, as acceptable levels of wear and excess charges vary.
- Maintenance and repairs. Your lease will note who pays for maintenance. Some leases will include a maintenance package, while others expect you to pay for it. There may also be a warranty package that includes maintenance and repairs.
- GAP Insurance. If you lose the vehicle due to accident or theft, your lease will likely still require you to pay the remainder of the lease agreement. You’ll likely be required to carry GAP insurance, also known as gap protection, to cover the lost value of the vehicle.
- Early termination fees. Canceling a lease early can result in termination fees. Early termination penalties vary by lease and can include the vehicles depreciation costs plus termination fees.
Benefits of financing to build auto equity
The largest benefit of buying a vehicle—as opposed to leasing—is you actually own it. There is no mileage or use restrictions, wear fees or imposed maintenance requirements. Your monthly payment goes toward the value of the vehicle, helping you build equity.
To determine if leasing vs financing a car is the best option for you, consider that leasing doesn’t allow you to resell the vehicle. As an added benefit, there also is no monthly payment once your loan is repaid. And, because leasing is cyclical and doesn’t build value, there is always a monthly payment.
For maximum affordability, consider pre-owned
New vehicles can lose more than 10% of their value within the first month of purchase and 20% more by the end of the first year. To add insult to injury, an additional 10% in value is lost each year for the next four years. That means in just five years, a new car can potentially be worth a whopping 40% less than the original purchase price. Buying pre-owned can save thousands in depreciation and, considering the average payment for a used vehicle is a staggering $137 a month less than a new vehicle, it makes financial sense for many buyers.
Plus, members have access to special sales and promotions through our partnership with Enterprise Car Sales for pre-owned cars. You can receive rate discounts and add value to your trade when you work with Enterprise.
How Greater Alliance Federal Credit Union can help
If you’re deciding whether to lease vs. buy a car, we recommend you do research to determine what is right for your situation and budget. Whether you’re looking to finance a new or used vehicle, we offer vehicle financing solutions to fit your needs. Our auto loans include:
- Competitive rates as low as 2.99% APR for new auto loans and 3.24% APR for used auto loans.
- Fast approval process
- Flexible terms up to 60 months
- Up to 100% financing available, including sales tax and extended warranty
- No down payment may be required
- Easy repayment process with payroll deduction and automatic payment options
Get the financing tools and support you need
Greater Alliance makes financing your next vehicle easy and affordable. As your one-stop solution for auto loans, our Auto Loan Calculator helps you determine a budget, and our Auto Buying Center guides you through the application process. Plus, all members receive free unlimited CARFAX reports to give you peace-of-mind.