Buying vs. Leasing a Car
Buying a car can be a significant financial undertaking. Back in college, I was headed home for the holidays when my drive took an unexpected and unfortunate turn. Suddenly, I needed a new car. Faced with the decision of whether to buy or lease, I immediately began researching the best option for myself at the time. I was surprised to learn that approximately one in five new cars are leased in the U.S. The feasibility and financial sense behind the buy versus lease decision depends on various factors as there are advantages and disadvantages to both. To make the best decision for my financial situation, I considered the following factors:
When Does Buying Make Sense?
Long-Term Ownership:
If you intend to make a long-term commitment and expect to drive extensively, purchasing a car often makes the most sense. Standard lease contracts typically last 24-36 months and allow for approximately 12,000 miles annually. Excess mileage fees typically range from 10 to 25 cents per mile. Purchasing a vehicle is generally more advantageous in the long run, whether you pay in cash or continue using the vehicle beyond the loan term, as it ensures you own an asset.
Maintenance:
As a vehicle owner, you are responsible for all maintenance costs, including filter changes, tune-ups, wheel alignments, and brake maintenance, among others. Ownership gives you the flexibility to control your maintenance schedule and expenses, which can lead to potential savings over time.
Equity and Resale:
When deciding between leasing and buying, it is essential to consider that leasing does not confer ownership rights to the vehicle. Instead, monthly payments are made for the right to use a car over a specified term. Conversely, when you purchase a vehicle, you own it outright once any loan is paid off and you have the title in hand. This ownership provides you with a tangible asset that can be sold in the future.
When Does Leasing Make Sense?
Regular Upgrades:
Leasing offers the flexibility to upgrade vehicles every few years, depending on lease terms. For those who enjoy having the latest models, leasing can simplify the process of getting in and out of cars without the hassle of selling a vehicle.
Predictable Maintenance Costs:
Leases typically align with manufacturer warranty periods, alleviating concerns about major repairs during the lease term. Further, some leases offer maintenance packages, allowing you to effectively lock in a consistent monthly payment.
Business:
Leasing a vehicle for business purposes can be highly advantageous. It can provide tax benefits and help reduce monthly operating costs.
Conclusion:
The decision to buy or lease a car ultimately depends on your individual circumstances and financial goals. Purchasing a vehicle is ideal for those anticipating long-term ownership and seeking flexibility in maintenance. Leasing is most beneficial for those prioritizing predictable maintenance costs and short-term transportation needs, as well as those who use the vehicle for business purposes. Understanding these factors will empower you to make a confident decision.
Source:
https://www.nerdwallet.com/article/loans/auto-loans/7-lease-vs-buy-questions-right
SSB Wealth Management, Inc., d/b/a Rembert Pendleton Jackson (“RPJ”) offers investment advisory services and is registered with the U.S. Securities and Exchange Commission (“SEC”). SEC registration does not constitute an endorsement of the firm by the SEC nor does it indicate that the firm has attained a particular level of skill or ability. You should carefully read and review all information provided by RPJ, including Form ADV Part 1A, Part 2A brochure and all supplements, and Form CRS.
This information is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product or concept. These materials are not intended as any form of substitute for individualized investment advice. The discussion is general in nature, and therefore not intended to recommend or endorse any asset class, security, or technical aspect of any security for the purpose of allowing a reader to use the approach on their own. You should not treat these materials as advice in relation to legal, taxation, or investment matters.
Certain information contained herein was derived from third party sources as indicated. While the information presented herein is believed to be reliable, no representation or warranty is made concerning the accuracy of any information presented. RPJ has not and will not independently verify this information. Where such sources include opinions and projections, such opinions and projections should be ascribed only to the applicable third party source and not to RPJ.