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Should You Buy or Lease Your Next Car?

By: American Heritage06.09.22

Along with buying a house, getting an education, and starting a family, choosing a vehicle is one of the biggest financial and lifestyle decisions you’ll make. And whether you’re a new driver or you have millions of miles behind you, you might be wondering if it’s better to buy or lease your next ride.

First off, let’s take a look at some numbers. If you have a make and model in mind and know the purchase price and lease price, you can use our free online buy vs. lease calculator to estimate your monthly payment for each scenario. For now, here’s a simplified example:


Initial vehicle value $30,000 $30,000
Term 48 mos. 48 mos.
Monthly payment $700$400


Going by monthly payment alone, leasing the vehicle would be a no-brainer. But remember – at the end of a lease, you’ve got to return the car, while at the end of a loan term, you own the car free and clear. When you total up your payments and factor in the remaining (or residual) value of the vehicle at the end of 48 months, your financial picture could look very different:


Initial vehicle value $30,000 $30,000
Term 48 mos. 48 mos.
Monthly payment $700 $400
Total cost $33,600 $15,200
Residual vehicle value $18,000 N/A
Adjusted cost $15,600$19,200


In this example, a $300 savings every month could actually end up costing you over $3,000. So, is it more advantageous to lease a car and enjoy a boost in your monthly budget, or to finance a car and maximize long-term value? The answer really depends on your current financial situation, your goals for the next few years, and your personal lifestyle preferences. In other words – your mileage may vary. To help you make the right decision for your unique circumstances, here are four other factors that you should consider:


1. Fees

Whether you lease or finance, you’ll have some extra costs you’ll need to investigate and factor into your budget. In either case, expect to pay license and registration fees upfront. If you lease, you may pay an acquisition fee and a security deposit; if you finance, a down payment may be required. With leases, drivers may also be charged additional fees at the end of the term, like a disposition or turn-in fee, which covers the company’s costs of cleaning and reselling the vehicle. And if you end your lease contract early, you may be subject to a termination fee.


2. Mileage

As a car owner, you can drive your vehicle as much as you need. As a lessee, you’re almost always limited to a set number of miles – typically between 10,000 and 15,000 per year. If you go over that limit, you will incur a hefty per-mile penalty. If you have a long daily commute, enjoy the freedom to go on road trips, or foresee a move or job change that might impact your driving habits, that limit could be a deal-breaker. On the other hand, if your annual mileage is modest and steady, it might not be a deciding factor.


3. Condition

Bought or leased, most new cars come with warranties that cover major repairs within the first few years. But there’s a big difference when it comes to wear and tear. If you lease, you’ll need to return the car in great condition, and you may be charged for any scratches or stains. You’ll also have to reverse any unauthorized modifications. If you’re satisfied with a car’s factory features and like to keep it pristine, you might be an ideal lessee. If you’re an offroad or performance driver and want the flexibility to customize your ride, you’ll probably want to buy.


4. Flexibility

Both buying and leasing have something to offer when it comes to flexibility. Many lessees like that they can select from an expanded range of options, drive a model for a few of its prime running years, and then easily turn it in for an upgrade. However, if your needs change midway through a lease term – say, your family grows and you need more seating – you’ll face a steep termination fee. If you own your car, you can sell or trade it in anytime, pay off any remaining loan balance, and find a new ride that better suits your circumstances.


Ready to Take the Wheel?

American Heritage Credit Union offers its members a variety of affordable and flexible vehicle financing and refinancing solutions – plus stress-free car shopping through AutoSMART and discounted auto insurance through TruStage®. Have any questions or want some help weighing all these pros and cons? Our friendly local team would be delighted to chat!



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