Google, “should I lease a car or buy” and you get a host of competing answers. Some sites tell you to never lease a car, while others say it’s the best option. Whoa. That’s not helpful, is it?

We wanted to bring you some facts to help make your own decision when it comes to either buying a vehicle or leasing on. 

What is leasing?

Cars are expensive. They have a high price tag that can be out of reach for many people. Leasing a vehicle is like renting it for an extended period of time. Instead of paying for the full price of the vehicle like you would if you were buying, you pay based on the depreciation value plus interest and fees. Although leases can be written for any length of time, two or three years are the most common terms. 

One of the key terms to know when leasing a car is the residual value. This is an expert’s opinion about the expected value of the vehicle at the end of the lease term. The residual value is determined and locked in before you ever drive off the lot. The best lease deals can be found on cars that depreciate the least and have higher residual values.

There are several distinct advantages to leasing versus buying, including: 

  • Lower monthly payments than a loan on the same vehicle.
  • The latest technology with a new car every few years.
  • Your car will always have warranty coverage.
  • Trading-in a leased vehicle is easy.
  • You may save some money on sales tax.
  • You could have a lower down payment.

But there are some cons to consider too:

  • You don’t own the vehicle.
  • There’s a mileage limit.
  • You won’t get any cash for your next car when you trade-in.
  • There can be lease-end costs.
  • There are restrictions on how you can use your vehicle.
  • It can be hard to get a lease with bad credit. 
  • You need gap insurance.
  • Lease deals are limited.
  • You can’t get your vehicle fixed just anywhere.
  • You have to return it in great shape.

What is gap insurance?

Almost all lease contracts require the purchase of gap insurance. This pays off the amount you still owe on your lease if the vehicle is stolen or declared a total loss. This coverage is a good idea on any leased vehicle, even if it isn’t required. Gap insurance is also for car owners with upside-down auto loans, where they owe more than the car is worth. 

You will most likely be offered gap insurance in the dealership finance’s office. But what they won’t tell you is that you don’t have to purchase gap insurance from them. You can shop for gap insurance from your car insurance company, bank, or other financial institution. If you take a quote for gap insurance into the dealership they will have to meet or beat the quote to sell you gap insurance, so it’s always a good idea to shop around first for the best quote. 

What are the pros and cons of buying a car?

Some benefits of buying a car include:

  • You own the car.
  • You can drive as much as you want.
  • You can get cash to pay for your next car.
  • You can make it your own.
  • You won’t have to make payments when the loan is paid off.
  • You can sell when you want to.
  • Financing is easier than leasing.
  • You can choose to fix it or not.

But there are some drawbacks to:

  • Buying a car is more expensive in the short term.
  • You have to pay interest on the entire cost of the car.
  • You may have to pay more sales tax.
  • You should make a large down payment.
  • The car’s future value is unknown.
  • The warranty will end.

There is no single answer for whether everyone should own a vehicle or lease. It’s a different situation for everyone. While leasing a vehicle may have a lower payment, therefore being cheaper in the short term, you don’t have any equity to use for a future vehicle, and can end up being more costly in the long run. The option you choose depends on your financial situation, vehicle needs, and your future plans. But, if you choose to lease a vehicle and need gap insurance, give us a call so we can get you the best quote possible.