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Should You Lease or Buy Your Next Car?

Nov 18, 2019, 09:37 AM
Should You Lease or Buy Your Next Car?

If Car Dealers and Manufacturers had their way, everyone in America would lease their car instead of buying it with a traditional loan.  Why? They “sell” more cars when people lease them.  According to Polk Research, the average consumer drives their new vehicle for almost 72 months. The average car lease term is 36 months, which means dealers can write two lease deals (and deliver two cars) for every one car sale.  And, they increase their supply of late model, lower mileage used cars when you lease and trade in after 36 months.

 

Should You Lease or Buy Your Next Car?

Dealers and Manufacturers love leasing.  However, just because it’s good for the Dealer, doesn’t mean it’s necessarily bad for you. Whether leasing makes more sense than buying depends on two things:

  • your driving behaviors
  • the deal you can get

But, to put those in context, let’s first look at what car leasing is.

 

Lease vs Buying a Car Difference

Leasing a car and getting a car loan are very similar; both are just forms of car financing.  As everyone knows, with a car loan, you borrow money from a lender and make payments until the loan is paid off, at which time you own the car.  With Leasing, you pay off the amount of the value of the car that you’re using while you drive it.  So, if you get a three-year lease, you will pay for the amount the car depreciates over three years, plus interest, to drive the car.  When your lease is up, you drop off the car and you’re ready for your next deal. Getting back to your driving behavior, there are two primary questions.

 

How long do you typically keep your car? 

If you’re someone who drives their car for eight or ten years, then leasing is probably not going to be a good deal for you.  The same is true if you drive a lot of miles per year.  Once you start to drive over 15,000 miles per year, leasing may start to make less sense, and if you’re driving over 20,000 miles per year, especially if many of those are highway miles, leasing isn’t a good idea for most people.  If you tend to keep your car a long time, or if you drive a lot of miles, buying your car with a traditional auto loan is probably the best option for you. Conversely, if you’re someone who usually trades their car in before it’s paid off, then you always have a car payment.  In addition, most people drive their cars between 10,000 and 15,000 miles per year.  If both are true for you, then leasing might be a viable option. Now, let’s add another variable to the mix.

 

Do you want to drive a specific make and model, or do you want the most car you can get for the money?

You can lease or get a loan on any car, but not all “lease values” are the same.  Some cars depreciate more in years 1, 2, and 3, which makes those cars more expensive to lease (remember, in a lease you pay the depreciation while you’re driving the car).  Cars that tend to hold their value better are better lease deals.  In addition, many times manufacturers will attempt to boost sales of a specific car by paying part of the depreciation in a lease for you. These can be very attractive lease payments, and in those cases, it can actually cost less to lease a car than to own it.  However, most of the time these incentives are not on the most popular cars. In the final analysis, the decision to lease or buy a car with a traditional loan comes down to your driving habits and the type of deal you can get.  And, you can compare the lease to a loan by looking at the payment for each, and comparing the loan amortization (you can get this from your lender) to end of lease purchase price for the vehicle.

 

Metro Credit Union | Best Car Rates in Omaha

Our goal is to help you get the best deal possible, whether you finance with us or not! We'll use our resources to determine if you're paying a fair price for a new or used vehicle, whether you're getting the maximum out of your trade, and determine if your loan rate is competitive. All of this at no charge, with no sales pressure. It just makes sense to start your car buying experience with someone you trust, your credit union! Plus, we offer great deals on extended warranties & GAP insurance. Learn about things to consider when buying a used or new car.    

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