Man and woman talking with car salesman in a showroom

Do you prefer a different ride every few years? Or maybe you look forward to someday being free from a vehicle payment. Depending on how you answer those questions, you’ll know better if leasing a car versus buying one is right for you. Here are some facts to help you decide.

What it means to lease a car 

With a lease agreement, you plan to drive the vehicle for a fixed period of time, and likely don’t plan to own it once your lease period ends. Initial lease costs may include first month’s payment, security deposit, acquisition fee, down payment, taxes, registration and other fees. Monthly lease payments are typically lower compared to a purchase or finance agreement to buy the car. This is because you’re mostly paying for the vehicle depreciation during the lease term, as well as interest and other fees.

A vehicle lease gives you the excitement of driving a different recent model vehicle every two or three years. At the end of the lease you can finance the remaining balance to purchase the car or lease another auto. Otherwise, you can simply return the vehicle at the end of the lease and walk away.

You can end your lease agreement before it expires. However, early termination charges can be costly. Those charges can sometimes cost just as much as if you had completed the lease term.                          

What does financing a car mean?

Financing a set of wheels means you plan to own the vehicle even after your loan is paid in full. Upfront finance costs may include down payment, taxes, registration and other fees. Monthly finance payments are usually higher than lease payments and include interest, finance charges, taxes and fees.

Weigh vehicle purchase and term limits

If you’re buying the car rather than leasing it, you’ll have to sell or trade in the car if you decide you don’t want it any longer. You’ll need to make enough on the sale or trade to pay the loan off, or be prepared to roll some or all of the remaining payments into a new loan. Unlike with a lease agreement, you can make this decision any time you wish when you finance your car.

To cover your financing or lease plan, you can apply for a new auto loan or used auto loan. In many cases you can apply to be pre-approved up to a certain dollar amount before you visit the dealer. This way you know exactly how much vehicle you can afford. Your budget cap will also factor into your buy or lease decision. If you don’t want to visit a dealer to buy a new auto, try a car buying service, which will do the searching for you.

Key considerations when deciding to buy or lease a car

Considerations Buy Lease
Vehicle purchase and term limits
  • Longer periods between purchasing new models
  • Buy, sell or trade vehicle any time
  • New car model every two to three years
  • Early contract termination charges could apply
Costs
  • Upfront costs; ongoing monthly payments
  • Upfront costs; ongoing monthly payments
Mileage
  • No mileage restrictions in place
  • Mileage restrictions set in place (e.g. 15-20,000 miles per year)
Wear and tear
  • No fees imposed for wear and tear
  • Fees assessed for excessive wear and tear

Mileage plays into your buy or lease decision

You can drive the car as many miles as you want if you finance it. Alternately, you face car lease restrictions like a limited number of miles you can drive annually. It’s common to see annual lease mileage limits of 10,000, 12,000 or 15,000 miles. If you have a long commute to the office or enjoy family road trips, think carefully about a lease option.

Excessive wear and tear could cost you

You don’t have to worry about the cost of wear and tear on your new ride, if you buy it. Likewise, it’s up to you to keep up with maintenance costs. One of the disadvantages of leasing a car is that you could face extra charges at the end of the agreement for what may be considered excessive wear and tear (e.g., dents).

These tips, combined with the use of an online lease or buy car calculator, can help you decide which option makes the most sense for your budget.

The advice provided is for informational purposes only. Contact a financial advisor for additional guidance. 

Used Auto Loan is subject to approval. APR = Annual Percentage Rate. Vehicles may not be older than 10 years or have mileage in excess of 150,000 at time of loan origination. Loan terms up to 72 months are available for used vehicles 5 years of age or less with mileage less than 100,000. Loan terms are limited to a maximum of 48 months for vehicle models between 6 and 10 years old, or with mileage that exceeds 100,000 up to maximum of 150,000. LGFCU will finance 100% of the NADA value, plus an additional 10% to cover purchase-related expenses such as tax, tags and extended warranties. Cash-out is not permitted on purchase transactions and cash-out refinance transactions are limited to a maximum Loan to Value of 100%. Lending is limited to residents of NC, SC, GA, TN and VA. No pre-payment penalties. Vehicles with branded (flooded, salvaged or reconstructed) titles or motorcycles, boats, RVs and commercial vehicles are not acceptable collateral. Product availability and current rates may be changed at any time at the discretion of the Board of Directors. Borrower must maintain collision and comprehensive insurance protection with a maximum deductible of $1,000 for the life of the loan. Must be age 18 or older to qualify for lending services.

New Auto Loan is subject to approval. APR = Annual Percentage Rate. A new vehicle is defined as current, prior or upcoming model year with 10,000 miles or less. LGFCU will finance 100% of the Manufacturer’s Suggested Retail Price (MSRP), plus an additional 10% to cover purchase-related expenses such as tax, tags and extended warranties. Cash-out is not permitted on purchase transactions and cash-out refinance transactions are limited to a maximum Loan to Value of 100%. Lending is limited to residents in NC, SC, GA, TN and VA. No pre-payment penalties. Vehicles with branded (flooded, salvaged or reconstructed) titles or motorcycles, boats, RVs and commercial vehicles are not acceptable collateral. Product availability and current rates may be changed at any time at the discretion of the Board of Directors. Borrower must maintain collision and comprehensive insurance protection with a maximum deductible of $1,000 for the life of the loan. Must be age 18 or older to qualify for lending services.

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