What to Know When Deciding Whether to Lease a Car or to Buy It
If a car commercial comes on during America’s Next Top Model and mentions a monthly payment for a vehicle, it’s likely the payment required to lease a car, not an auto loan payment. The difference is, at the end of an auto loan, you own the car free and clear. At the end of a lease, you turn the car back into the dealership. They’ll do their 367-point inspection and sell it as a used car.
Leasing a car is similar in some ways to leasing an apartment. There are pages and pages of agreements to sign and money to put down, usually a couple thousand dollars. (Car commercials like to put the amount due at signing in teeny, tiny type under the huge numerals of the monthly payment or at the very bottom of the screen.) All of these pages detail what you may and may not do, and what types of things will incur penalties at the end of the lease. Even though you want to spend as little time as possible in the finance office of the dealership, it would be smart to know what you’re signing up to do—or not do—while the leased car is in your car.
For example, when you lease an apartment, you pay a pet deposit. The lease probably details that the deposit covers the extra cleaning that will be required to get all of Fluffy’s fur out of the carpet, but it will not cover the pantry door Fluffy destroyed when she tried to get to the food behind that door. You’re going to be on the hook for that door.
Likewise, when you lease a car there are often have restrictions on things like the number of miles you can drive while you have the car. If you go over the mileage, you’re going to be on the hook for those extra miles.
Why You Should Lease a Car
The real advantage of leasing over buying is that it’s almost always cheaper per month to lease a car than buy. In either case, you’ll need to have money stashed away for the down payment due the day you sign the lease or the sales agreement. If you lease, you’ll need more money saved up for any fees that might come at the end of the lease. If you buy, when the loan is paid up, you’re free and clear. You own the car outright.
There’s long been a culture of ownership in the United States that says owning your car, or your home, is better than leasing either. But now that we’re well into the new millennium, that mindset is changing fast. Ownership doesn’t carry the cultural cachet it once did with younger buyers, who pay monthly fees for everything from streaming movies to online accounting apps.
Given that most people keep their cars for longer than lease terms, getting an auto loan buying a car the traditional way makes perfect sense. You’ll have it paid off before you decide to sell it. But if you know your circumstances will change—maybe you plan on having a family—the smaller commitment of a lease might be a perfect fit.
Did you know IFS can help you buy your leased car? Learn more about our lease car purchase options now.[This post has been updated from a version published in Take the Wheel: A Woman’s Guide to Buying a Car Her Own Damn Self, Llyfr Da Publishing, 2013.]