« Back to Blog

Buying vs. Leasing a Car – What is Better for Your Finances?

Emu in a Yellow Car, on an Orange Gradient Background with Purple Text

When you consider a new vehicle, whether you should buy or lease a car probably isn’t the thing at the top of your mind. You’re probably thinking of the make, model, price, color, and gas mileage first. (Whew! Those gas prices!) However, buying vs. leasing a car is an important question that you arrive at eventually. So, what is better for your finances? What is better for U?

Before you think that deciding to buy or lease is a quick decision… Let’s walk you through it! It’s not just about how quickly you get the car and who your payments will go to, there’s much more to the process. 

Whatever you choose, you’ll want someone on your side to help you make the right choice for your financial present (and future)! At UMe, we can (and want to!) help get you started on your smart car-buying journey and help you make the best choices for your next set of wheels. 

Keep reading and learn more about buying vs. leasing a car and the impact on your overall financial picture.

A Difference in Process: Buying vs. Leasing

Let’s start from the beginning. Buying vs. leasing doesn’t matter because you still get the car, right? …Right? Not so fast. There are details to each process that may make one option better for you than the other. 

Buying a Car

The concept of buying a car is relatively clear-cut because most of us understand it through previous experiences either first- or second-hand: 

  • Determine your budget, choose a car, and select a dealership.
  • Get approved for a car loan, make a down payment, and consider and agree to a loan term (length of loan) and monthly payments.
  • Make payments for the term of the loan until the loan is paid in full.
  • Once the loan is paid back, you own the car!

When you buy a car, you invest in the vehicle and work towards owning more and more of it. Eventually, at the end of the process, the car is yours. But the mileage, wear and tear, and overall depreciation come with it.

Leasing a Car

What is this leasing business all about anyway? Think of it as renting a car from a dealership. 

  • The first step is the same as for buying a car: Figure out your budget, choose a car, and select a dealership.
  • Consider and agree to leasing options, which typically include mileage limits, length of the lease (also known as term), payments, and additional fees such as the extended warranty packages you typically can choose from.
  • Make monthly payments for the term of the lease.
  • Return the car and start the process over again with a new car.

By leasing a car, you are not investing in anything that you will own. (It’s more like a rental.) At the end of a lease, you won’t own the car. But you will have the opportunity to buy the car you’ve leased, or lease a new vehicle. Or you can decide to buy an entirely different car. 

Points of Comparison

Now that you know more about how each process works, let’s compare more about buying vs. leasing so you can determine which is better for you and your finances? While the answer depends largely on personal preferences and circumstances, there are some points of comparison that can help.

Payments

Whether you buy or lease a car, you will end up with some form of monthly payment for some length of time. Typically, leasing a car comes with lower monthly payments.

The main difference is that leasing a car is similar to renting one – you don’t get to take it home at the end. However, when you buy a car and pay on a car loan, you’re investing in something you will eventually own.

But you also have to consider the amount – if any – that you put down. 

You can purchase or lease a car with little or no down payment. With a lease, this “no-money-down” option means you may have higher monthly payments, but those will be spread out throughout your lease. Unless you plan to buy the car when the lease is done, there’s no reason to put down a large amount of money upfront other than to have a lower monthly payment.

With a car you are buying or planning to buy, the down payment increases the amount of equity you immediately have in the vehicle. And we love equity for U! It’s usually recommended that you put down 20% of a new car’s value as a down payment. The down payment amount will lower your interest rate as well as your monthly payments.

Depreciation

Depreciation is the rate at which your car loses value. While not true in all cases, the value of a new car usually drops as soon as you drive it off the lot. 

So, if you are financing a car, that car will lose value during its first few years. If you go to sell or trade in the car later, the value is likely to be less than what you’ve invested.

Leasing a car allows you to ride through that early depreciation period. It’s the dealership that will be selling the car after it depreciates. 

Mileage

When you buy a car, you expect to be able to drive it to your heart’s content! This isn’t an option if you lease a car.

Leasing a car comes with mileage limits. When you lease a car, you will be offered mileage options aimed at meeting your driving needs. If you exceed this mileage limit, you will be responsible for paying for mile overage charges. 

Don’t forget about the wear and tear that comes with owning a vehicle. A leased car is usually under warranty, but you may be responsible for more repairs out of pocket, if you are financing the car. 

Customization and Extras

When you lease a car, you may be able to select a vehicle with all the new, top-tier features. The monthly payment may be slightly higher, but usually more affordable than if you buy a car, since you are primarily paying for the amount of time you are driving the vehicle. 

But there is a limit to the features and customization allowed on a leased vehicle. After all, the dealership will later have to sell your leased car as part of its pre-owned inventory. Plus, any extra money you spend on making the leased vehicle special will be lost (or depending on the customization might cost you) once the car is turned in at the end of the lease.

Financing a car means that car will eventually be yours and you can customize it any way you see fit. Tinted windows, fancy paint job, fancy rims — the choice is yours! Any improvements or extras you add to the vehicle may increase its value if and when you trade it in or sell it.

Buying vs. Leasing Pros and Cons

Who wins in the battle of buying vs. leasing a car? Check out the pros and cons to pick your winner.

Buying Pros

  • Your monthly payments are going toward something you will eventually own. Equity!
  • You have zero limits on mileage and customization.
  • Once the loan is paid off, you are payment free for as long as you own this car.

Buying Cons

  • The monthly payment is often higher than with a leased vehicle.
  • You are responsible for major maintenance and repair (depending on on your insurance coverage and warranty).
  • The car will most likely depreciate in value.

Leasing Pros

  • Your monthly payment is usually lower.
  • You get to drive a new vehicle at its prime! Fancy.
  • The warranty will provide coverage in case of repairs and maintenance.

Leasing Cons

  • You do not own the vehicle.
  • Mileage is limited per the terms.
  • You may face additional charges at the end of the term.

Can You Do Both?

Yes! As previewed above, some people choose to buy their leased car at the end of the term. You buy a leased car based on its “residual value.” The residual value is the estimated value of your vehicle at the end of the lease.

When you buy your leased car, you’re purchasing something you already know. The memory seats, the idle’s hum, your preferred mirror settings — it’s all familiar. Plus, if you’ve made some changes to the car or had some damage, you’re avoiding the fees you would have to pay when turning the car in after the lease term.

Keep in mind that there may be fees and logistics involved in buying a leased car. There are personalized pros and cons to this specific scenario that will have to be considered before deciding if this is the right choice for you.

Buying vs. Leasing: Making the Right Choice for U!

Whether you choose to buy or lease a car, UMe is here for U! (Obviously.)

If you finance a car, you will need someone in your corner to make sure you get the very best. We’re the ones for the job! UMe can help get you started on your car-buying journey and help you finance the vehicle of your dreams. 

We offer low monthly payments, financing up to 125%, flexible terms up to 84 months, and no payments for 90 days!

Plus, if you’re wondering what’s the best way to qualify for a car loan, we’ve got you covered there too. We’re professional loan smarties. Let us walk you through the steps for getting the best auto loan in Burbank because U matter to Me (all of us) at UMe.

 


Disclaimer: U matter to Me (all of us) at UMe — and that’s why we do our best to deliver helpful information on our blog. Please note the following: (1) UMe Credit Union works hard to make certain that the information we post here is as accurate as humanly possible. But as you know, information can change and evolve quickly. While we try to update the blog on a regular basis, the content of some older posts may not be correct or up-to-date. (2) Some destinations on the World Wide Web that we link you to will exist on external websites. UMe Credit Union does not officially endorse any connected sites, nor do/did we compensate or get compensated by any entities to be featured in our posts (unless otherwise noted). (3) Everyone’s situation is unique and we advise you to consult with our personal bankers or your finance, tax, or legal professional for advice individualized to you!