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Car Buying Guide: Lease or Own

When it comes to getting a new car in your garage, there are a lot of options. Most people will decide between leasing or owning a car. Let’s clear the air and teach you everything you need to know about this category.

Leasing a Car

Leasing a car works as a long-term rental on a vehicle. It’s typically only offered on new cars, but it might also be offered on cars that are 2-4 years old as a “re-leasing vehicle”. You’ll only be able to lease a car through a dealership, so there’s no ability for a private sale here.

How Long it Lasts

We said earlier that leased cars are like long-term rentals, but we didn’t define how long “long-term” is. This is something that’s decided between you and the dealership. Typical leases last 12, 24, or 36 months. Certain dealerships have weird lease periods like 39 months or 26 months.

As you’re choosing a car, the salesperson will ask you how long you want to lease it, and they’ll tell you their pre-determined leasing periods.

How it Works

When you lease a car, you aren’t paying the full MSRP for the vehicle. You’re only paying for the portion of the car that you use plus some money for the dealership to pocket.

Let’s say you use the car for 24 months. Brand new, the car is worth $30,000. The manufacturer estimates that in 2 years, the car will be worth $23,000. That means that they’re on the hook for $7,000.

Your lease will at minimum pay that $7,000. The industry standard is to add a few thousand on top in administrative fees, commissions, and money to keep the dealership open. Let’s say the final payment is $9,000.

This might seem like a lot of money, but it really boils down to $375 a month.

How You Pay

The lease is paid in monthly installments. In reality, you can give the whole $9,000 upfront when you first lease the car, but you’ll run into a lot of financial trouble if the car gets in an accident later.

When you first pick out a lease, you’ll determine how much money you want to put down upfront, and the dealership will tell you what the monthly payment works out to. If you’re a math nerd, the equation looks like this:

Total Amount Owed = Down Payment + (Monthly Payment x Months)

In this case, $9,000 = Down Payment + (Monthly Payment x 24). If you want a lower monthly payment, you can place a larger down payment. A lot of experts suggest putting no more than 10% down in a lease.

Pay Per Mile

Another clause that goes into your lease is how many miles a year you’ll put on the car. Most dealerships will offer 10,000, 12,000, or 15,000 miles a year. Any miles you put on above that total amount will work out to a fixed cost per mile that you owe at the end of your lease.

This makes leases a poor choice for people who travel a lot or drive a lot for work. If your commute is 30 miles one way, that’s more than 15,000 miles a year in just commuting.

Maintenance and Coverage

Another unique part of leases is that they’re more or less covered bumper to bumper for the majority of the time you’ll have them. It’s a weight off your shoulders and you won’t have to worry about turning a wrench when you own the car.

In some cases, you might even get incentives that cover a certain number of free oil changes every year. Since the car is brand new, maintenance isn’t a big concern. If parts are defective, the dealership will often fix them for free.

Leasing is a low-stress way to operate a car.

End of Lease Terms

At the end of your lease, there are a few things to keep in mind.

Buy it or Give it Back

The first thing is a tough decision. You can either hand in your keys after 24 months and get another car, or you can negotiate a price to buy the car that you just leased.

Most dealerships will offer an attractive price for a lease-to-own car. Since you’re the only previous owner, it’s a smart option if you like the car and were considering buying a used car anyway.

At that point, it no longer becomes a lease, and it will be transferred into a purchased car under the dealership’s terms.

Final Vehicle Inspection

Another thing that happens is a final vehicle inspection. If you’re buying the car after the lease, you don’t really have to worry about this. If you’re handing the car back to the dealership, they will do a thorough inspection of the interior and exterior of the car, along with all the parts. If there is excessive damage or anything is broken beyond a certain dollar value, they’ll charge you.

This is also when they’ll ensure you used the correct mileage, and they’ll charge you for any additional miles you put on your car.

Rollover into a New Lease

If you’re over mileage and have damage to your car, there is a smart tactic you can try. Ask the dealership if you can start a new lease with them on the grounds that they overlook the damages and mileage. In most cases, they’ll take you up on the offer.

At worst, they’ll roll over some of the costs of the damages into your new lease terms, but you’ll still wind up paying a lesser amount.

Ending the Lease Early

Within the last 5 months of your lease period, make sure you’re checking your mailbox and email inbox. The dealership might send you incentives to turn in the car early. If you suspect you’ll go over your mileage, then it’s a good idea to turn it in early and avoid the extra costs.

Pros and Cons

Pros:

  • Low-stress
  • Easy to take care of
  • Monthly payments are more manageable
  • Wind up paying less for a car (but not in the long run)

Cons:

  • Car goes away after the lease period
  • Requires a good credit score for a good lease rate
  • Need to find a new car every few years

Owning a Car

Many people already know about owning a car, but let’s dive into how it compares to leasing a car.

Higher Monthly Payments

Paying off a car that you buy takes more months and has a higher monthly payment. Rather than just paying off a small portion, you’re paying off the whole MSRP.

With that said, once you pay off the car then you’re driving it around for free. Car owners can have the same car for 10 years and cut back on their expenses.

More Expensive and More Frequent Maintenance

If you plan on owning your car for a while, you’ll be calling a mechanic a lot. That’s just the name of the game when it comes to cars – things break.

You can expect things to break more often, and the repairs to be more expensive as compared to a leased car. This is all because you’ll own the car for longer than you’ll lease a car.

Selling for Another Car

When you don’t want the car anymore, you can simply sell it and get another car. The process is straightforward, and it doesn’t require a last-minute decision like leasing a vehicle does.

If you wake up one day and don’t like your car anymore, you can quickly replace it.

You Keep What You Pay for

This is the biggest benefit of buying a car, you get to keep what you pay for. A leased car goes back to the dealership when you’re done with it, so you’re just paying them for a long-term rental.

When you buy a car, every payment goes towards owning the car.

Pros:

  • You keep the car
  • You can sell the car whenever you want
  • You have the ability to get any kind of car you want (and any year of manufacturing)
  • The car lasts a lot longer

Cons:

  • More frequent and more expensive maintenance
  • Higher payments that go on for longer
  • You’re responsible for the car

Conclusion

The decision between leasing and owning became easier for you, hopefully. They are different ways that let you park a car in your garage and drive it every day. You should know which option is right for you now.

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Ernest Martynyuk

An automotive enthusiast who's been tinkering with vehicles since I was 15-years old. Repairing automotive electronics has been my main job for over a decade now and have a passion for everything technical regarding cars.

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