If you follow J. Paul Getty’s dictum that you should buy things that appreciate in value and lease things that depreciate, then the decision to buy or lease a car would be an easy one. But the choice of whether to buy or lease a car isn’t always a purely financial one. Many of the relevant considerations involve personal preferences that touch upon what you want from the car you drive.

Let’s examine the relative benefits and disadvantages of each.

Benefits of Buying

There are several key advantages to buying a car, including:

• No limit on the number of miles you can drive
• No worry about wear and tear charges
• Sell or trade-in your vehicle whenever you want
• You can make any desired customizations
• After the loan payments are complete, the car is owned by you, affording you potentially years of car ownership without monthly payments

Drawbacks of Buying

There are disadvantages, however, to buying a car, such as:

• Monthly loan payments are generally higher than lease payments
• An upfront down payment is typically required
• Sales tax, if applicable, adds to the cost
• The higher cost of financing may limit the car you can afford
• Longer car loans may lead to upside down situations in which selling the car or an insurance event leaves you owing more than the car is worth
• If you’re not financing the purchase, there is an opportunity cost

Benefits of Leasing

Leasing offers several benefits, including:

• Lower monthly payments and no upfront lump payment
• No sales tax
• A number of maintenance expenses may be covered under the lease
• Allows you to always drive a new car with the latest technology and safety features

Drawbacks of Leasing

As with buying, there are also disadvantages to leasing:

• Extra cost if you exceed the mileage restriction
• Subject to wear and tear fees (i.e., scratches, dings, etc.)
• Recurring leasing is more expensive since you’re always paying for a car when it’s at its most expensive and is in the stage of most rapid depreciation
• The ability to customize the car is limited
• Ending a lease early can be very expensive

So, how should you decide? The decision to buy or lease is unique to each individual. Consider your budget, how much you drive, the value to you of driving the latest car model, the relative financial costs and whether serial leasing impacts your ability to fund other financial priorities, such as retirement.

Please reference disclosures at: https://blog.americanportfolios.com/disclosures/