Do you like to drive a new car every few years or do you prefer to hold onto a car as long as possible? While leasing may seem appealing, owning might be the better financial decision long term. We look at the pros and cons.

Q: What are some of the pros to leasing a car?

A: For many, leasing is an opportunity to drive a higher-priced, better-equipped model of car that you can trade in every few years. A monthly lease payment is often lower than a monthly car loan payment. Scheduled maintenance and oil changes may be covered during the early warranty period. And, if you have a short commute or work from home, you’re less likely to exceed the annual mileage maximum as part of the lease terms. You also won’t need to worry about the car’s trade-in value or selling it yourself. At the end of the lease, you simply drop the car off at the dealer. Or, you may choose a lease buyout in which you buy the car from the leasing company for a predetermined price.

Q: What are some of the cons to leasing a car?

A: You always have a monthly payment versus paying it off after a few years if you own it. Lease contracts specify a limited number of miles per year. Should you go over the prescribed mileage, it can cost you anywhere from .10 cents to .50 cents for every mile over the limit. You won’t be credited for unused mileage. If you don’t maintain the vehicle, you could pay additional charges for any damage. You also have to pay for items like tires if they wear out. Should you decide you don’t like the car and want to return it in advance of the lease ending, you’ll likely pay thousands of dollars for early termination, which will be due in full once the car is returned. Those fees could end up costing you more than what you would pay for the full lease term.

Q: What are some of the pros to owning a car?

A: These days, with good credit, it’s common to get a 0% to under 2% interest loan. You can choose a short loan term, such as three years, or pay cash and own the car outright.Once paid off, since it’s a depreciating asset, if you drive it as long as possible, you’ll get more value from your investment.

As a comparison, generally, two leases that are each three years  will cost thousands more compared with buying a car (with a loan or with cash) and owning it over that same six-year period. And, car buyers if they continue to hold on to the car, say, for another three years for nine years total—even factoring expected maintenance and repairs, the savings increase. You could also choose to own a used car such as a certified, pre-owned vehicle to lower your loan costs or the amount you would pay in cash. As long as the car is reliable and doesn’t require significant repairs, this may be a good alternative.

Q: What are some of the cons to owning a car?

A: A car loses value over time and can lose 20% of its value in the first year. According to Edmunds.com, luxury cars with a high manufacturer’s suggested retail price, or MSRP, tend to depreciate more rapidly than moderately priced, non-luxury models.

For example: the estimated depreciation for a 2019 BMW 7 Series M760i xDrive sedan over five years is $109,591, or roughly 67% of the $162,954 MSRP, according to a tool Edmunds uses to calculate value to own. A 2019 Toyota Avalon sedan has an MSRP of $40,979. But its estimated depreciation after five years is only $22,773, or roughly 55% of the MSRP.

There are variables that accelerate depreciation including a car’s make and model plus mileage and the cost of gas. You could also have unexpected maintenance and repair costs. Higher-end luxury cars tend to cost more to repair and maintain over time. And of course, eventually, you will have to trade-in or sell the car.

Sources

“Leasing vs. Buying a New Car,” consumerreports.org

“How Car Depreciation Affects Your Vehicle’s Value,” creditkarma.com

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