Should You Buy or Lease a Car?

Pros and cons of buying vs. leasing a car

Unless you live in one of the few U.S. cities with fast, reliable public transportation systems, you'll probably need a car to get around. But many car shoppers face a difficult choice at the dealership: Is it better to buy or lease a car? We've compared buying vs. leasing a car in the guide below, so read on to find out which makes sense for you.

The benefits of leasing a car

Leasing a car has several benefits, especially to young professionals:

  • Generally there is a low down payment or none at all, making it affordable to drive the car off the lot.
  • Monthly payments are typically lower than if you buy the car.
  • It's an affordable way to get the latest model, technologies and features every few years.
  • Leasing fees also generally cover maintenance for the car, and if you'll only have it for three years, most repairs will remain covered under warranty.
  • Leasing terms typically last for three years, at which point you can choose to buy the car at a price set when you signed the lease, trade the car in for a new model and new lease, or turn the car in and pay a fee to end the lease without starting another.

Questions to consider when deciding whether to buy or lease

However, there are also several considerations that may make buying the car a better option:

  • How often will you drive the car? Most lease agreements restrict you to 10,000-12,000 miles a year, with a fee charged for each additional mile. If you know your commute will put you over your mileage limit, you can negotiate for higher mileage, but at a higher monthly price. For this reason, drivers who travel often or have a long commute may not find leasing to be the best option.

  • Are you prepared for a higher insurance premium? Leased cars often have a set minimum policy requirement to cover the cost of damage and liability, which may raise your payment.

  • Do you want to build equity in the car? With a lease, the payments you make throughout the term get you no closer to owning the car. If you bought a new or used car with financing, over time you would pay down the loan and have full ownership of the car. That way, you could put all the proceeds from the sale of your current car toward a new car.

  • What is the purchase price you agreed to? Pay close attention to this and the future market value of your car to determine if you'll want to buy a three-year-old car with 30,000 miles on it for that price, especially since you've been making payments to cover its depreciation for the last three years. Of course, you could take out another lease instead and get a car three model years newer.

  • What is the total cost of leasing for six years? Make sure you closely examine all the fees in your leasing agreement, not just the monthly payment and purchase price. Compare this to the costs of owning a new or used car for the same period of time. It's wise to look at the cost over six years, or two consecutive lease terms, as most auto loans will last at least five years and the total expenditures will be more comparable than looking at the cost over three years.

After weighing these considerations, you may find that buying a car is beneficial if you:

  • Are concerned you may exceed the mileage restrictions.
  • Want to be free to make modifications to the car.
  • Are looking to pay lower insurance costs.
  • Aren't concerned with having the newest model.
  • Are interested in building equity in the car to have cash in pocket toward a new car when you sell.
  • Believe the total net costs at the end of six years of leasing (or three years and a purchase) are higher than six years of car ownership.

Making payments on your loan or lease

Whether you buy or lease the car, you'll have a monthly loan or lease payment. Missing one or more of these payments can result in additional fees or a higher interest rate. To send your monthly payments automatically, use the bill pay feature available when you open a checking account online or in person. Citizens Bank's online banking can help you set up and track your car payments to make sure your bills are always paid on time. Plus, with our mobile banking app, you can even monitor or make car payments on the go.


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