In 2014, the United States was home to a whopping 260,350,940-odd count of registered motor vehicles.
According to recent statistics from the United States Census Bureau, the average American’s commute to work is roughly 25.4 minutes one-way.
Even without these statistics, it doesn’t take much thinking to reason how important cars are to daily living in today’s society.
Outside of using someone else’s car, there are two primary means of securing a vehicle for personal use: buying and leasing. You can either purchase a car upfront, with cash, or finance its cost over months or years through regular payments, typically made on a monthly basis.
Although both buying and leasing accomplish the same goal – obtaining a motor vehicle for driving – each has their own unique set of benefits and detriments. Let’s look into the basics of each, and which is most likely to feet your personal needs.
The Barebones Basics Of Each Option
Leasing is essentially paying for the loss in value resulting from the length of the lease in question, including any unavoidable wear and tear caused during the lease period.
Financing, a type of buying, involves accepting higher long-term costs of purchasing, rather than paying more on the date of purchase. Typically, people that can’t afford to fork over the entire purchase price of the vehicle they’re considering opt for financing, whereas those in stable financial situations choose to pay the entire price at once.
At the end of leases, lessees – the people leasing the cars in question from lessors, which are usually dealerships – are forced to return their vehicles to lessors. Those who finance vehicles aren’t required to do so, given they pay monthly installments in a timely manner. Individuals who purchase cars, obviously, never have to return their motor vehicles, arguably the central-most benefit of buying in cash.
Both financing and leasing accumulate interest charges – by a factor of the interest rate in financing, and the money factor in leasing – over time, whereas straight-out purchasing does not.
Costs Associated With Buying And Leasing
Let’s assume that the same car is considered for all comparisons herein.
Buying is considerably more expensive than leasing. Financed vehicles could feature smaller monthly payments than leases, but only if financing terms last years longer than lease terms. The reason financing could be cheaper in the interim is because its long-term cost is much higher than its normal purchase price, thanks to the eighth wonder of the world – compound interest. However, you can avoid overpaying for your car loan by reducing term length and seeking out low interest rates.
Leasing is least expensive because lessees don’t actually own their vehicles. They can’t sell, trade, or modify them. However, both financed and purchased vehicles can be sold, traded, and modified.
Further, leases involve mileage limits. Drivers that exceed these limits are required to pay a fee for every mile driven in excess of the agreed-upon mileage allotment, potentially resulting in thousands of dollars in unnecessary fees.
Leases are unique in requiring drivers to not exceed certain limits.
Who Is Best Suited To Buy Or Lease?
Individuals in favorable financial positions with sufficient income, and can comfortably afford to throw thousands of dollars away, are ideal candidates for purchasing vehicles.
Those that aren’t in good positions, or who simply want to try a vehicle out for a year or two, are best left to sign lease agreements.