Should I lease or should I buy?

In the market for a new car? The first question you should ask yourself is: “What is the average air speed velocity of a migrating swallow?” The second question you should ask is: “Should I lease or should I finance?”

Leasing and financing are both means of getting the car that you want on a monthly payment plan but there are several distinct differences that could affect your decision.

The most obvious difference between leasing and financing is what happens to your vehicle once the monthly payments are finished. At the end of a lease, you can decide to buy the vehicle for its current value or you can drop that vehicle off at the dealership, begin a new lease and drive away with another brand-new vehicle. With financing, every monthly payment builds equity in your vehicle and once your payments are complete, the vehicle belongs to you.

Some may give the advantage to the choice of leasing, as you skip the perceived hassle of owning an aging vehicle. Plus, if you continue to lease, you can drive a new car every few years with all the latest tech gadgets and safety features. Others believe financing makes more sense because once all the payments are complete, you can either sell the vehicle or you can keep it through many “birthdays” – the choice is yours.

Budget-wise, choosing to lease or finance will depend on your cash flow, how you use your vehicle and what you see in your future. Leasing often requires low down payments and lower monthly payments compared to financing a car with similar terms. This is because with a lease you’re paying a percentage of what the vehicle will cost at the end of your lease (or the depreciation) rather than the whole vehicle cost. If you need access to more cash every month, leasing may be the right option for you.

Cash Flow

Although financing a vehicle usually means a longer-term contract, once the vehicle is paid off a significant portion of your monthly costs are gone, leaving only insurance, maintenance and repairs. That said, the need for repairs will usually increase as your car gets older.

Another point to consider is what happens if your vehicle gives you any nasty surprises. When leasing a vehicle, you are covered by the manufacturer’s warranty period and are therefore “off the hook.” When financing however, it is your responsibility to address any surprise issues with your vehicle once the manufacturer’s warranty expires.

Vehicle Use

How you treat your vehicle will affect your decision because leasing a vehicle comes with mileage restrictions. Should you exceed your limit, it can cost you down the road: 15,000 kms is the average yearly allowance on most leases. Check your odometer to see if your driving habits are conducive to a lease. If you find you drive substantially less, you may be paying unnecessarily for depreciation in a lease and you ought to think about purchasing. If you routinely cart around carpools of kids, a few dogs and lawn maintenance equipment, there’s a good chance you will inflict some damage on the car’s interior; a lease may not be for you as you will be charged standard wear-and-tear fees.

Financing works well for an individual who wants to create the car of their dreams using the endless aftermarket customization and modification options available for most new vehicles. When leasing a vehicle, these options would violate the terms of your lease and are therefore not available.

What’s next?

One of the biggest things to consider is: How flexible do you need to be if your situation changes in the future? If you really only want to drive the car for a few years, leasing is the most convenient option. Remember though, you’ll pay substantially if you try to get out of the lease before the term is complete. If you’re financing and your financial situation changes, if you’ve taken care of your vehicle, you can sell it and move on relatively painlessly. Finally, if you’re more inclined to drive the vehicle until the last bit of life is left in it, then financing would be a better choice for you.

There are pros and cons to either option but ultimately you need to consider your situation and what is best for you, your driving habits and your life. Take into account the vehicle’s longevity, its potential value in the future, your monthly budget and how long you plan to keep it.