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Apparently, there's more than one way to buy a car. And if you're one of the few people who had no idea leasing existed until your early 20s(raises hand,) this is your lucky day. Because I'm going to give you a rundown on the pros and cons of leasing a car vs buying it.

But first, let's talk a little about leasing.

Leasing a Car
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To put it in lamens terms, you are essentially borrowing the vehicle. However, instead of having to finance that car's whole value up-front, you only pay the difference between the car's negotiated price and the "residual value."Residual value is a percentage used to predict what that car will be worth at the end of your lease. This number can vary depending on how long you plan on leasing. 

Residual Value can be explained pretty painlessly with some quick math(see? you do get to use those "pointless" high-school math classes after all.) Say you wanted to lease a 2018 Jeep Compass for three years with a negotiated price of $27,000. If this Compass's residual value was 54%, you would only have to finance the remaining 46%, $12,420(plus interest and any additional fees.)That total is then taken and applied evenly over the three years.

Pretty simple, right? Leasing also comes with some extra perks you won't get with buying a new vehicle outright.

Pros to Leasing
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Usually a Lower Monthly Payment
If you were paying attention during the math, you saw that what you actually pay for in a lease is significantly lower than what the car is worth. Which means: lower monthly payment(booyah!)I should add, however, that some cars lease better than others, and there are rare cases where a lease would cost more than buying outright. 

The Down Payment Usually isn't Massive
Typical lease specials at dealerships like to advertise the famous "no-money-down" lease, which is very doable. But considering money-down will always lower your monthly payments, it never hurts to drop a grand or two.

You Won't be "Upside-Down" at the End of the Lease 
Since you don't actually own the car, you have no equity--which also means you can't have negative equity. When your lease is up, you simply drop it off at the dealership and you're done. So you don't have to worry about trying to sell the car off for a fraction of what it's worth(that's the leasing company's problem.)

Easier to Upgrade

We all have that friend who has to have the latest tech, and leases work perfectly for them(I don't, so I'm the one that buys their hand-me-downs--because reasons.)Since leasing gets them out of that negative equity, it's easier to jump into a new lease with the current year of the same car, and they get the benefit of all the advancements made on that car in safety and tech.

Now you may be asking, "Why doesn't everyone lease if it's cheaper?" Well, there are a few reasons why some prefer buying over leasing.

Cons to Leasing
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Mileage Limits
The bulk of lease agreements have mileage restrictions within the contract, and they typically range between 10,000 to 15,000 miles per year with the monthly payment rising based on how many miles you request. And if you go over the agreed miles, you have to pay out of pocket for every additional mile--something like $.25 per mile--and these can add up. So if you're traveling almost weekly for your job, leasing may not be the best path for you. 

You Must Exercise TLC for your Lease
Since the car isn't technically yours, the leasing company expects you to give it back similar to the way you found it. This means no extensive modifications and no Dukes of Hazzard off-roading. Failure to do so will likely get you charged with Excess Wear Fees by the leasing company. They will also expect you to provide documentation of all required maintenance over the time of your lease. You can still add cosmetic stuff to the vehicle; just make sure the additions are easy to remove.

Also, if you're using the vehicle for taxi purposes(uber, lyft, etc...), make sure it checks out with the leasing company first.

You Gotta Have Great Credit
Banks are finicky to finance bad credit, especially with leases. And while there are sometimes incentives for leasing with poor credit, most of the time the buyer is still better off buying the car outright. It really varies from person to person.

Buying a Car
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With everything said prior, it almost seems to demonize the idea of paying more per month by purchasing the car outright. That couldn't be further from the truth, because there are perks to buying the car too, and they're all pretty much the exact opposite of the cons of leasing.

Pros to Buying
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Once it's Paid Off it's Yours
Yes, those larger payments can be a pain in the butt, but once you pay the car off it belongs to you. That means you have complete freedom to modify it however you want and drive it as much as you want. 

Credit Doesn't Have to be Perfect
This method is much more friendly to people with less than perfect credit. And a lot of times, there are still incentives for financing with a lower score.

But as previously mentioned, there are drawbacks to buying as well.

Cons to Buying

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Higher Monthly Payment
I won't go knee-deep on this one since I've already beaten you over the head with this all the way through leasing.

Larger Down Payment
The standard down payment a bank will ask for is somewhere between 10-20 percent(this varies with the individual.) So you're gonna need some "major moola" if you're looking to buy new.

The Car's Value Over Time can be Unpredictable
The market is ever-shifting(sometimes ever-annoying.) The cogs can turn and churn until all of a sudden your 3-year old car is worth less than a dinner for two at Applebees(would you believe I pulled the name of the restaurant for this joke out of a hat?) This is not always the case, however, and your car's value could be totally fine over the years. It's just a blend of researching the past depreciation of that car and a stoic roll of the dice.

Weigh the Options
In the end, the best option between these two is solely up to the individual and their needs. And while there are times when leasing is out of the question or vice versa, we are able to work with you and the banks to find the best path forward.

Whichever you choose, may your car shopping be spectacular for you as well as your wallet!

Written by Tyler Wright

Categories: New Inventory, Finance