There are quite a few decisions to make when it comes to used car shopping. Should you be buying a used car? Maybe you want a new one? Should you lease or buy? How does leasing a car work?
While buying a car means higher monthly payments and coming up with more money upfront, crunch the numbers and you’ll see that in most cases, buying a slightly used vehicle makes the most long-term financial sense. But not everyone is interested in the long-term, and there are situations when purchasing a vehicle just isn’t the right move.
That’s why we’ve laid out the pros and cons to car leasing and car buying.
How does leasing a car work?
Leasing a car is similar in concept to a long-term rental. It involves an agreement with a leasing company allowing you to drive a vehicle a fixed amount of Kilometres for a fixed monthly fee. That’s not to say that you can’t drive more than the amount of Kilometres agreed upon, but if you do, you’ll likely face additional charges when your lease is up. Unlike financing a vehicle, your monthly payments do not build equity. There are many elements of a lease that you can negotiate, including your monthly payment, interest rate, number of Kilometres you can drive, and the residual value left at the end of the lease – at which point you can decide if you want to buy it out.
Get more information on residual value and whether to buy out your lease.
Pros to car leasing:
Owning a vehicle is expensive regardless of whether you buy new or used, and leasing is one way that many people reduce the monthly expense of operating a car.
Car leasing is likely a good option for you, if:
- You like to switch up your car regularly: If you get bored of cars quickly and like to drive the newest models with the most up-to-date technology and features, then car leasing is a good option for you.
- You like driving a new car: A lot of people just can’t afford to buy the car they want. Since lease payments are often lower than payments made when financing a vehicle, this allows many to drive a nicer vehicle that they’d be able to buy.
- Monthly payments are a major concern: Month-to-month expenses are a big concern to most people and it can be hard to fit the extras into your budget. Leasing makes it possible for people to drive a new car for and pay smaller payments than if they bought it outright.
- You don’t have a far commute: People that don’t drive a lot have nothing to worry about in terms of exceeding the allotted number of Kilometres that the lease allows.
Pros to buying:
As we’ve discussed, buying a slightly used car is usually less expensive in the long-run if you plan to hang onto it for more than a couple of years. Owning a car also gives you the freedom to drive as much as you want, make modifications and use the vehicle as an asset down the line. If you have enough in the bank you can pay cash for the vehicle, this will likely give you some room to negotiate the purchase price. If you don’t have enough to cover the entire purchase price at once (which is most of us), you can get a loan to finance the car through the dealership, a lending company or even a personal line of credit.
Buying a used car is likely a good option for you, if:
- You plan to drive the same car long-term: The main difference between leasing and buying is that when you buy a car and the payments are up, the vehicle belongs to you free and clear. You can enjoy some time with no car payments, and when it comes time to upgrade, you have the vehicle to use as a trade which can help with price negotiations or to make a nice down payment on your next ride.
- You want to modify your car: If you’re into vehicle customizations like lowering the car, modifying the exhaust or air intake or adding specialty tires, buying the car is the way to go. If you lease the car, you’ll have to reverse all of the modifications before the lease is up, meaning all that money you spent on mods goes out the window.
- You spend a lot of time behind the wheel: Owning a car means you don’t have to worry about kilometre limits – you can drive as much as you like!
There is no simple answer to the question of whether it is better to lease or buy – it really depends on your priorities, your financial situation and your preferences. Take the time to consider the pros and cons to decide which is the best move for you.