Should you buy or lease a new car? The average cost of a new vehicle in the United States is a fraction under $40,000, which is a little less than the average median income. It's a lot of money to spend at once and both leasing and obtaining a car loan are viable options.
To get to the bottom of this, let's look at the pros and cons of leases and auto loans when buying a new car.
Is It Better to Buy or Lease a Car?
If you can afford to buy a car outright, that should always be the option near the top of your list. You won't have to worry about monthly payments and interest charges and your credit report won't take a hit.
But that's just not an option for most consumers. They can't afford such a sizeable payment and even if they could, they have other things to spend that money on.
That's where auto loans and leases come in.
Leasing a New Car vs Auto Loans
An auto loan charges higher monthly payments than a lease but when you make it to the end of the loan, the vehicle is yours.
When you lease a car, you pay less every month but you can aim a little higher, getting a car that is usually out of your price range and one that contains the features you need.
You drive the car during its most problem-free years and at the end of the lease, you just sign another contract and start the process again.
You will pay much more over the long term, though, and you won't get a car at the end of it.
If you were to get an auto loan instead, the car will eventually be paid off in full, at which point you'll have something to get you from A to Z without worrying about monthly payments and high interest rates.
Is Leasing a Car a Waste of Money?
Is renting a waste of money compared to a mortgage? It's a similar question and the answer is similar, as well.
It is a waste of money in the sense that you are not working toward a goal and the vehicle will never be yours. But to suggest that all of that money has gone down the drain is nonsense—you’ve spent that time driving the car and using it for your work, family, and social life.
Sure, it's not the most economical way to drive a car, especially when you look at the bigger picture, but if you just want to drive a new car without eye-watering monthly payments, it's a very good option to have.
Cons of Leasing a Car
Besides the cons already discussed above, one of the biggest problems with leasing a car is that you can only drive them for a limited number of miles. If you exceed that limit, you will pay for every extra mile that you drive.
It could get very expensive very quickly.
You will also be charged extra if the car is not in great condition, and if you're leasing so that you can have a big car to transport several children around, that's a very real possibility.
If you're anticipating that the car will come to harm during the lease, and you are worried about hidden fees and extra charges, a lease is probably not the best option.
Auto loans are the more traditional option and for many, they are also the best. You will pay more per month, but at the end of the term, you'll have something to show for it. The car is also yours for as long as you meet those monthly payments, which means you don't have to worry about mileage fees and other hidden charges.