More than ever before, people are leasing their car. Yet 75% of Americans believe that buying vs. leasing a car is smarter than leasing one.
Why? Karl Brauer, senior analyst, Kelley Blue Book’s KBB.com, summed it up: “Buying a car allows the owner to build equity in a vehicle and recoup some percentage of it when it’s time to sell or trade in, while leasing a vehicle means every dollar spent on the lease is gone and can never be recovered.”
Let’s take a look at more reasons why buying a new car or truck could make more sense for you than leasing one.
1. Ownership Will Cost You Less in the Long Run
Leasing is the most expensive way to operate a motor vehicle. The New York Times interviewed Jeff Bartlett, deputy automotive director at Consumer Reports, in an article about leasing vehicles.
“If you asked me about the most expensive way to get a car, the answer would be: You only want to own it during its period of greatest depreciation and then move to another new vehicle. Well, that’s what leasing is,” he said.
Buying can save thousands over leasing. Edmunds.com and the New York Times ran calculations, using a midsize sedan, to prove that buying a car (whether new or used) makes more sense.
If you were to lease a midsize sedan for nine years, it would cost you about $24,385. Buying a new car and driving it for nine years would cost $17,756 total. Buying used will cost only about $14,566. What’s most economical of all? Buying a used car. With a used car, you could save nearly $10,000 over leasing.
Still not convinced? Check out this super compelling slideshow/video, called “Drive Free, Retire Rich” by personal finance guru, Dave Ramsey. Sure – it’s slightly hyperbolic, but it drives the point home – buying a used car makes a great deal of financial sense.
2. You Can Be Payment-Free
Even if you finance your vehicle purchase, eventually the car will be yours, and you’ll enjoy payment-free driving. A typical vehicle finance period is 60 months, or five years. And the average vehicle loan payment has hit a record high of $482 per month, according to Experian Automotive. If you drive that car for 11 years — that’s the average age of a car on the road — you will have enjoyed six years without that annual car payment of nearly $6,000 per year. That’s $36,000 that could be sitting in an interest-bearing bank or investment account.
3. You Can Get a Different Car Without Penalty
With a lease agreement, you can’t terminate your lease early without facing stiff penalties — sometimes thousands of dollars. If you suddenly found yourself needing to conserve money, you could easily sell your car and buy something more affordable – perhaps an older car, or one with more affordable insurance. By owning a car, you get to change vehicles without getting punished.
4. You Have Unlimited Mileage
When you buy a car, you can put on as many miles as you please. Road trips, here we come! Leased cars are typically restricted to 12,000 miles per year, and the typical overage charge is 15 cents per mile in excess of that limit.
While 12,000 miles per year may seem an adequate allowance now, leasing doesn’t account for potential changes in life and work that may require more driving. Maybe you’ve been struck with inspiration to take a great American Road Trip with friends or family, and you want to take the southern route from San Francisco to Boston. Even a one-way trip would be about 3,900 miles, so those highway miles would be best be done in a car you owned. Or if your work circumstances changed, you could be among the 2.2-million Americans who commute 50 miles each way. If you had to do that commute in a leased vehicle, odds are you’d have to write a big check before handing over the keys.
5. Insurance May Be More Affordable
When leasing a car, you will likely have to purchase additional “gap” insurance. Even if the dealer doesn’t make it mandatory, you may want to consider it. Why? Gap coverage insures the difference between what you still need to pay on the lease agreement and the value of the car. For instance, the dealership may value your car at $30,000 but your insurance company values it at just $26,000. Without gap insurance, you would need to pay the $4,000 difference if your leased vehicle were totaled in a wreck.
Gap insurance may not be necessary when buying a car, even if you’ve taken out a loan. (Though do check your loan agreement. Some lenders require it.)
6. You Can Modify Your Car
Buying your vehicle allows you to modify it however you like. If you’d like to upgrade your wheels, the head unit, make the car go faster, go right ahead. Just remember that some modifications will void your vehicle’s warranty. Modifying a leased car is either discouraged or downright against the lease agreement.
Let’s say you’re in the midst of a tough winter and want to purchase a set of snow tires. At the end of the lease, you’ll be left with a set of tires and no vehicle to put them on, so will have the hassle of having to sell or dispose of them yourself.
7. Fixing Dings Is Optional
With a leased vehicle, you’re obligated to repair blemishes and dings, or you’ll be charged heavily. If you own the vehicle, you decide what gets fixed. For instance, if you park your car on a busy street, it’s bound to get some dings from other drivers. The damage to your bumper might not seem so bad to you, and that’s OK for the car you own. With a leased car, you might have to pay for the bumper to be repainted — or replaced if the damage went beyond the paint.
Which Car Will You Buy?
Those seven reasons for buying instead of leasing are pretty compelling. Depending on your situation, buying a car may offer you more freedom and save you money in the long term.
Whether you lease or finance a vehicle, having better credit can give you access to better deals, which could mean lower payments for you. Before you hit the dealerships, check your credit to see where you stand.
See you on the open road!
Rob Infantino is founder and CEO of Openbay, an online marketplace to cross-shop, book and pay for vehicle repair. He has always worked on cars, including transmission replacements and engine rebuilds, and spent years working on a pit crew. Rob holds a Bachelor of Science in electrical engineering from the University of Connecticut. A noted authority on car repair, Rob’s interviews have appeared in BBC Autos, Boston Globe, The Economist and NY Daily News. More by Rob Infantino