So you’ve decided it’s time for a new car. You know the kind of car you want, but you can’t decide whether you should buy or lease. It’s a tough call and there’s no one right answer. On the one hand, leased cars give you the option to update to a newer model more quickly and may have lower monthly payments; but when you buy a car you actually own something at the end. To help you figure out the best option for your particular situation, we’ve compiled the pros and cons of buying and leasing and whether it makes more sense to buy or lease a car.
Interested in applying for a car loan? Check out Union Community Bank’s Auto Loan options today.
Should I Buy or Lease a Car?
Leasing a Car
Leasing a car is a lot like renting an apartment. You enter into an agreement, typically 24-36 months, with the dealership that says you can use the car as long you make your monthly payments on it then at the end of the lease, you can either give the car back, lease a newer model, or buy it at a predetermined amount.
Car Leasing Pros:
- Lease payments are typically less expensive than car loan payments because in the short term you’re only paying for the vehicles depreciation during the lease term
- You can drive a pricier car for less money
- Any repairs the car needs will cost less because they’ll fall under the vehicle’s included factory warranty
Car Leasing Cons:
- After the lease is up, if you return the car, your financial investment will not result in ownership
- If you end a lease early there can be costly penalty charges
- There is a limit on the number of miles you can drive a year and there are penalty charges if you exceed that
- You may pay more in the long run if you continue to lease versus buying a car and owning it for years
When to Lease a Car:
Leasing a car might make more sense if you don’t have enough money for a down payment or larger loan payments. People who are interested in luxury cars but wouldn’t be able to buy one outright, often consider leasing. If you want to change your car more frequently, leasing makes more sense because after the lease is up, you can try a newer or different model car. When determining how much you can spend on a lease monthly, it is recommended that your monthly payments don’t exceed 10% of your monthly take-home income.
Want help figuring out whether buying or leasing makes more financial sense for you? Check out Union’s lease vs. buy calculator.
Buying a Car
Buying a car is probably what most people think of when they think about getting a new car. Typically, when you buy a car, you have two main options for payment. You can pay for the car in full, in which case you would own the car outright. Or, if you don’t have the total amount to pay for the car upfront, you would apply for an auto-loan. and make payments until the loan is satisfied and the car becomes yours.
Car Buying Pros:
- Once you’re done paying the car off, it belongs to you
- You can make any modifications to the car that you want
- There’s no limit to how much you can drive the car
Car Buying Cons:
- At any point during the term of your loan, if your car is worth less than the loan balance, you have negative equity
- There is typically a larger cash down payment required
- The longer your loan term, the more likely you are to end up paying more than the car is worth
When to Buy a Car:
Buying a car might make more sense for you if you have the money to make a full down payment and can pay off a loan in under three years. If you are planning on driving a lot of miles every year, in order to not surpass the lease mileage limit, buying might make more sense for you. When buying a car, to make it a worthwhile investment, your monthly payment should be no more than 15% of your monthly take-home income.
Saving for your first car? Learn more about how to save up enough for your first car.
Get on the Road
There is no definitive answer to the question of whether you should buy or lease a car. The important thing is to look objectively at what you can afford and what the next few years might have in store for you. Once you’ve decided, contact Union Community Bank to learn more about our Auto Loan options or visit one of our 14 conveniently located branches to speak to a Union Trusted Advisor.