Should You Purchase or Lease a Car?

Although there are many monetary considerations when deciding whether to lease or buy an automobile, cost is not the only issue. In fact, a person’s risk preference and frequency of car swapping heavily influence their decision.

It’s logical to buy a car rather than lease one if you want to avoid making monthly payments and have the freedom to use the vehicle whenever you like. More people than you might think are leasing vehicles because they don’t care about ownership.

26.45% of all new vehicles were leased in 2018, with Hondas and Toyotas being the most popular car makers, as reported by Experian’s Q4 2020 State of the Auto Financing Industry research. Leasing a vehicle also typically means a lower regular payment.

Consider your budget and driving needs before committing to a car loan or lease. Learn the ins and outs of car leasing vs. outright purchase with our helpful guide.

Before deciding to buy a car, what steps should you take?

Anyone with enough cash on hand can buy a car without taking out a loan, but the vast majority of buyers choose auto loan financing. According to the same Experian data, last year, 81.12% of all new vehicles and 34.59% of all used vehicles were financed.

Obtaining a Loan for a Vehicle Today:

The high cost of automobiles, especially new ones, contributes to the widespread use of financing options. The average amount borrowed by 2020 new-car buyers was $35,228, according to Experian, up from $33,255 in 2019. As a result, in the final quarter of 2017, the typical payment for a brand-new car was $576.

New car loans have far longer periods since consumers are borrowing more money. In reality, in the fourth quarter of 2020, 42.13 percent of new car loans were for 61 to 72 months, and 30.21 percent were for 73 to 84 months. Only a tiny fraction of borrowers (1.41%) actually went for loan terms that extended beyond that.

There are many options for making a car purchase work with your budget. You have the option of purchasing your automobile through a dealer, a private seller, or even an auction. If you don’t have the money to buy a car altogether, you may either apply for financing through the dealership or shop around for a loan from a financial institution.

Online markets allow shoppers to shop around for the best automobile loan rates, both new and used. Our recommended marketplaces include Auto Approval, AUTOPAY, myAutoloan, and RateGenius. You can use these websites to locate the most affordable vehicle loan rates for which you qualify.

Where to Look for the Lowest Prices When Buying a Vehicle:

The internet has made it simpler than ever to discover a good deal on a car. While shopping for a new or used car, keep in mind these guidelines:

1. Choose a car that is practical for your daily needs.

Think about which vehicle category best appeals to you. An SUV or minivan might be a good choice if you frequently travel with a large family. To cut down on gas costs, think about getting a more compact automobile or going electric. More than half of all newly purchased automobiles in the fourth quarter of 2020 were sport utility vehicles, per data compiled by Experian.

2. You need to figure out how much of a car payment you can afford.

Check the monthly payments of the cars you’re considering to be sure they’re affordable. A car loan calculator will help you figure out how much you can afford to put towards a car each month.

3. Autotrader is a great place to look for new and used vehicles for sale in your region.

When you know what kind of car you want to buy, you can use Autotrader to look for available models in your area. Check out the website to compare the costs of both new and used vehicles, as well as their available options and amenities.

4. Use Kelley Blue Book as a reference for estimating the cost of a new or used vehicle.

Once you’ve decided on a specific make and model of automobile, it’s helpful to have an idea of what the going rate is for that vehicle. By entering the make, model, and options of the vehicle in question, Kelley Blue Book can estimate how much you can expect to pay at a dealership or in a private sale.

5. Determine what kind of car insurance is needed.

Determine the car’s insurance premiums. Any major insurance company, such as Progressive, will provide online quote services.

6. Get your own auto loan (if required).

Finally, remember that getting auto financing from the dealer isn’t your only option. You can acquire a car loan estimate online and then go to the dealership to try to get the lowest rate they can provide you.

In what ways do car leases function?

Leasing is a form of borrowing because the car is yours to keep for a set period of time. With a lease, you won’t be able to develop any equity in the automobile, but you also won’t have to pay for any repairs during the lease period, as the vehicle is probably covered by a warranty.

While leasing does have its drawbacks, it remains a popular choice for those who prefer to have a brand new vehicle most of the time. With a lease, you may drive away in a brand-new vehicle, enjoy it for a few years, and then trade it in for something better. You’ll never need to sell your current vehicle to buy a newer one, and you’ll never have to stress over whether or not your trade-in is worth enough to cover the cost of the new vehicle.

According to Experian, by the end of 2020’s fourth quarter, the typical lease had lasted for 36.46 months. Meanwhile, rent was an average of $460/month.

Finding the Best Auto Lease Rates:

Those who have made the decision to lease an automobile rather than buy one should begin their search at large franchised dealerships. The finest lease agreement can be difficult to locate, but the following advice can assist.

1. Get behind the wheel of your choice of leased automobile.

Look at the various automobiles available. Leasing is an option you should consider. Do you wish to lease a high-end vehicle instead of buying it? To travel to work, do you require a dependable vehicle?

2. Try looking up rental specials on the web.

If you already know what kind of automobile you want to lease, you can start looking at dealerships in your neighbourhood. You may easily discover and compare lease deals from several companies by visiting their websites.

3. Seek out the most affordable regular payment option.

Since there is no chance of ever owning a leased vehicle, choosing the most affordable monthly payment should be your top priority. You should also check that the lease duration suits your demands, whether you’re interested in a 12-month or 24-month commitment.

4. It’s important to think about the initial investment.

Be sure you can afford the lease’s down payment, keeping in mind that high-end rentals frequently need a several-thousand-dollar initial deposit. Whilst this down payment could reduce your lease’s monthly cost, you’re not really “getting” anything in return.

Purchasing a Car: The Good and the Bad:

If you want to retain a vehicle for a while, it can be worth you to buy one rather than lease one. The reason for this is that if you keep a car for a while, its value will increase and you’ll have more to trade in when the time comes.

You can avoid auto payments indefinitely if you keep your car for a long enough period of time and eventually you will own it altogether. Meanwhile, having your own vehicle means you can put as many miles on it as you like and customize it with whatever you like.

Keep in mind that once the manufacturer’s warranty has expired, you will be fully responsible for any necessary maintenance and repairs.

Those Who Need a Vehicle the Most:

1. Those with high credit scores, who are eligible for the most competitive vehicle loan rates
2. Those who intend to keep their automobile for at least three to four years
3. Those that drive and wish to have complete command over their automobile (including its mileage)
4. Those whose goal is to increase their equity through regular payments

Many Advantages and Disadvantages of Vehicle Leasing:

If you enjoy driving a new car on a regular basis, leasing may be the best option for you. Those who wish to avoid negative equity in a car or the headache of selling an older vehicle might want to consider this alternative.

Although the monthly cost for a leased vehicle is often less than that of a newly purchased vehicle, you may be able to lease a vehicle with more features and options than you could otherwise afford if you bought it. Always keep in mind that if you lease a car, you will constantly be making payments on it.

If you lease a car, you won’t be able to make any permanent modifications to the vehicle, and there are mileage restrictions that may be inconvenient.

Who Benefits from a Vehicle Lease?

Those who like to get a brand-new vehicle every few years

Drivers looking for the best possible vehicle at the lowest possible monthly payment

Those that don’t concern about increasing their vehicle’s equity

Anybody looking for an unfailingly covered vehicle

Concerns to Consider Before Purchasing or Leasing a Vehicle:

Buying a car and putting a lot of miles on it is a great long-term strategy for anyone looking to save cash. Alternatively, you can keep driving a brand-new or used vehicle until the high expense of repairs forces you to upgrade.

Leasing is far superior to buying if you want to have a brand-new vehicle every few years. This is truer the longer you can go without worrying about making a car payment.

The following are some things to consider before committing to a car purchase or lease:

1. While choosing my next car, how long do I want to keep it?
2. Should I choose a reduced mortgage payment each month or the opportunity to create equity?
3. How much money do I have to work with?
4. How often do I go out on the road, and how flexible am I with a lease that has a mileage cap?
5. Please tell me my credit score. Do you know where I can receive the lowest interest rate on a car loan?
6. How will my auto insurance premiums change if I buy vs lease?

There is no universally correct strategy for purchasing or leasing a vehicle. Weigh the benefits and drawbacks of both choices to determine which is better for your needs and budget. Your ultimate objective should be to arrange affordable, dependable transportation.