In the past, leasing a car was mainly done by luxury car shoppers and corporate customers, but this is no longer the case. If you’re shopping for a new car, you may want to weigh the benefits of leasing before you take out a car loan or pay cash for a new model.

Benefits of Leasing

When you lease a vehicle, you’ll leave the dealership behind the wheel of a brand-new model. The process is similar to buying a new car, although you’ll typically have a lower monthly payment than what you would pay if you finance the entire purchase. When you take out a loan to buy a car, you’ll need to get enough to cover the full purchase price minus any money you have to put down. On the other hand, the financing in a lease agreement covers the cost of the depreciation of the vehicle for the term, which is generally around three years.

If you love having the latest vehicle, leasing could be a good option. When the lease term ends, you can bring the car back to the dealership and choose a new vehicle and enter into a new lease agreement. Leased vehicles are typically covered under the manufacturer’s bumper-to-bumper warranty, so you don’t have to worry about unexpected repair costs.

Drawbacks of Leasing

One of the drawbacks of leasing a vehicle is the fact that you’re only paying down the value of the expected depreciation. At the end of the term, you can pay the residual value to keep the vehicle, but the monthly payments you’ve been making are essentially like a rental fee to drive the car for a set amount of time. Another issue that might come is that a lease term will have mileage restrictions, so you may not be able to drive as much as you want, or you’ll end up having to pay extra at the end of the term.

Benefits of Buying

When you finance a vehicle, you’ll own it outright as soon as you make the last payment on the loan. If you want to purchase a different vehicle, you can sell the car and put the money toward another model. People who prefer to keep their cars for longer periods of time will often benefit from buying instead of leasing since they’ll have more to show at the end of the loan agreement.

Additionally, you won’t have any restrictions on normal usage of your car, even when you’re still under the terms of your loan. You can drive as many miles as you want without having to pay anything extra.

Drawbacks of Buying

A new car’s value will depreciate the most in the first few years, so when you buy the car, you’ll have to take that financial hit. Changing market conditions could also impact what it’s worth within just a few years. Some lenders require a significant portion of the loan as a down payment, so that could make it more difficult to qualify for a loan.

As you decide whether to buy or lease your next vehicle, weigh the pros and cons to help you make a decision that works best for your financial situation and meets your needs.

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