Should You Buy or Lease Your Next Vehicle?

This week, Craig Siminski, of CMS Retirement Income Planning, shares with us an article discussing the advantages and disadvantages of owning vs. leasing:

New vehicle prices have skyrocketed these past few years, with the cost averaging well over $48,000 toward the end of 2023.  These increased costs, coupled with rising interest rates, mean that buying a vehicle can take a significant bite out of your budget. If you are in the market for a new vehicle, you might be wondering if leasing it would save you money.

As a rule, if you plan on keeping a vehicle for a long period of time, it makes more sense to buy it. But if having the latest technology and safety features is important to you, leasing might be the best option, allowing you to drive a new vehicle every few years. To help you decide, you should also determine how each option fits into your lifestyle or budget.

Here are some points to consider:

Ownership

When you buy a vehicle, you usually finance a portion of the purchase price and pay it back over time with interest. When the loan term ends and the vehicle is paid for, you own it.

You can keep it as long as you like, and any retained value (equity) is also yours to keep.

When you lease a vehicle, you don’t own it — the leasing company does — so you do not have any equity built up once the lease is over.

At the end of the lease term, you can choose to either return the vehicle or buy it at its residual value, which is set forth in the lease. If you end up returning it early, the dealer may require you to pay a hefty fee. If you still need a vehicle at the end of the lease term, you’ll need to start the leasing (or buying) process all over.

Monthly Payments

If you finance all or part of your new vehicle purchase, you will have a monthly payment that will vary based on the amount you finance, the interest rate, and the loan term. When comparing loans, it’s important to look at the total amount of money you will end up paying over the life of the loan.

While a longer loan term may give you a more affordable monthly payment, you will end up paying more money over the loan term.

In general, monthly lease payments are usually lower than monthly loan payments since you are mainly paying for the vehicle’s depreciation during the lease term as opposed to the purchase price.

This means that leasing may allow you to…

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Craig Siminski is a CERTIFIED FINANCIAL PLANNER™ professional, with more than 25 years of experience. His goal is to provide families, business owners, and their employees with assistance in building their financial freedom.

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