Should I Lease or Buy?

It seems that it is a common dilemma for many automobile customers who are comparing purchasing options. Is lease better option? It depends on each individual. Simply say, leases and purchase finances (loans) are two different ways of automobile financing. Lease is financing the use of a vehicle and a loan is financing the purchase of a vehicle. Each method has its own advantages and disadvantages. The important point here is that it is almost impossible to conclude that one is better than the other for sure because it depends on your own situation and preferences. What you need to do first is to decide what is important to you. Here are some questions that you may want to take some time to think of. Is having a new vehicle every 2 or 3 years with no hassle for major repairs more important than long term cost? Are long term cost saving more important than lower monthly payments? Is ownership more important than low up-front costs and no down payment?

Buying and leasing are different

When you buy, you pay for the entire cost of a vehicle; regardless of how many kilometers you drive it. On the other hand, you only pay for a portion of a vehicle’s cost, which is the part that you use up during the time you are driving it. For example, if you lease a vehicle that costs $30,000, but is worth only $23,000 after 2 years, you pay for the $7,000 difference (it is called depreciation), plus finance charges, plus fees during the term of the lease. When you buy, however, you pay the entire $30,000, plus finance charges, plus fees. This basically explains how leasing offers remarkably lower monthly payments than buying.

So, which is better, lease or buy?

As I mentioned earlier, it depends on what is most important to you. If you prefer lower monthly payments and like a driving a new vehicle, that’s always under warranty period, every 2 or 3 years, but are willing to pay a little more over the long haul to get those benefits, then lease is the way for you.

If you prefer to pay off your vehicle, do not worry about payments, and drive it for as long as you want, but are willing to have higher initial monthly payments and maintenance costs, but lower long-term costs, then you should buy.

For those who are still making decisions, it might help you decide whether to buy or lease. From the article written by Jessica Anderson, I found this statement very compelling "Leasing still makes sense if you trade in every few years and always have a car payment." (Anderson, 2009).

The chart below is the comparison of a typical lease compared to a 0% loan and a typical loan. I have to warn you though, because it does not necessarily mean that leasing is always better. Monthly payments are not the only factor that you should consider.