Lease or Buy?

What You Need to Know About a New Vehicle

The process of acquiring a new vehicle comes with a LOT of questions. Of course there’s make, model, and the all-important question of color, perhaps the biggest decision is whether to lease or buy. While both options have their merits, the best choice depends on your personal circumstances, preferences, and financial goals.

To begin with, let’s look at the basic difference between leasing and buying.
 

When you lease a vehicle, you agree to make a monthly payment in exchange for the opportunity to drive it for a certain length of time and miles. Leases typically run 2 or 4 years and include mileage restrictions. If you exceed agreed-upon number of miles, you’ll be charged a penalty. As the driver, you’re responsible for maintenance and must have full-coverage auto insurance. At the end of the lease, you have the option to return the vehicle, buy it, or exchange it for another leased vehicle with a new contract.
 

When you by a vehicle, if you pay for it outright, you immediately get the title (a legal document that establishes ownership of the vehicle). If you take out a loan to pay for the car, the lienholder (the lender) keeps the title until you’ve paid off the loan. Once the loan is paid, the title is sent to you. Even though you may not hold the title, you are considered the registered owner and are responsible for insurance, maintenance, and can sell, trade, or give away at your discretion.

In addition, there are some significant financial differences between leasing and buying to consider.

REASONS TO LEASE A CAR

Lower Monthly Payments
One of the most attractive aspects of leasing is the potential for lower monthly payments compared to buying. This may allow you to get a more expensive vehicle—think a bigger truck for work—than you might be able to afford with or without a loan.

Reduced Maintenance Concerns
Because leases typically run 2 to 4 years, the vehicle is often covered under the manufacturer's warranty for the duration of your ‘ownership.’ This can lead to significantly lower maintenance costs over time.

No Resale Hassles
If you hate the car selling process, then you’ll appreciate the ease of simply returning a vehicle to the dealership when the lease is up. There’s no haggling about resale or trade-in value.  

Access to Newer Vehicles
For people who enjoy driving the latest models, leases make it easy to upgrade as the typical lease term is 2 to 4 years. 

Potential Tax Advantages
If you use your vehicle for business purposes, leasing may offer tax advantages than a loan. Specifically, you may be able to deduct both the depreciation and financing costs. However, there are restrictions. Talk to your tax professional for specific advice.

REASONS TO BUY A CAR

Acquired Asset
Unlike a leased vehicle, a purchased car becomes an asset once it’s paid for in full.

Freedom to Modify
As the owner, you have the freedom to customize or modify your vehicle as you see fit, without worrying about lease agreement restrictions. This is an important consideration if you’re using your vehicle to haul materials for work or may need to install custom racks.

No Mileage Restrictions
While leases often come with mileage restrictions, you can drive a purchased car as much as you need.

Potential Long-Term Savings
While monthly payments for a purchased vehicle may be higher initially, buying a car can be more cost-effective in the long run, especially if you plan to keep the vehicle for many years.

Ultimately, the decision to lease or buy depends upon your driving needs, preferences and financial situation. 

If being able to drive many miles is a priority, then buying will likely make the most sense. But if you’re looking for the lowest monthly payments, leasing may make sense.

To learn more about current loan rates and how they might impact your decision, visit the Co-op’s auto loan page. For additional questions, email the personal loan department. 

DISCLAIMER: This article is meant for educational purposes only and is not intended to be construed as financial, tax, investment or legal advice.