Leasing vs. Buying a Car

You are so ready for a new ride. You’ve done your research, gotten your financial ducks in a row, and maybe even selected the make, model, color, and trim package you want. But before you march into the dealership to make it happen, there’s one question left to ask yourself: “Should I lease or buy a car?” 

It’s a smart decision to get educated upfront on leasing versus buying a car, so you know exactly how you’ll afford your new wheels. 

Man and woman signing contract to buy car



Leasing vs. Buying a Car

So, what is the better deal, buying a car or leasing one? The answer is … it depends (sorry!). Ultimately, the lease-vs.-buy decision depends as much on the state of your finances (income, cash flow, and debt load) as it does on your personal tastes and goals. But don’t worry — we’ll walk you through the details.

Say you’re looking for a car you can eventually hand down to your kids, or you’ve got plenty of cash for a nice down payment. Then, buying may suit you best. If, on the other hand, you like the idea of upgrading to a newer model every few years, or don’t want to think about things like trade-in value, then leasing may be the route.

Let’s review the pros and cons of leasing vs. buying and the factors that will help you make the right decision for you. You’ll also learn how your choice of lender can impact your car buying or leasing experience. For example, did you know credit union car loans often take into account a broader range of factors when determining lending rates, meaning you’re more likely to qualify for a better rate at your local credit union? First, let’s cover some important details. 




What is a Lease, and How Does it Work?

You can think of a lease as similar to renting your vehicle for an agreed-upon period — typically 24 or 36 months, though longer terms are available. Your up-front costs may include the first month’s payment, a refundable security deposit, and other assorted fees, such as registration. All in all, you’re putting roughly a couple of thousand dollars down to drive the car off the lot.

 

Advantages of leasing a car

One of the main selling points of a lease is it gets you into a new (or new-ish) car for a couple of years, which you can then return to the dealer in exchange for another new car. This way, you’re always driving a relatively new vehicle covered by the manufacturer’s warranty. Often, oil changes and other routine maintenance are covered for the life of the lease. 

There are plenty of additional upshots:

 

Disadvantages of leasing a car

While leasing sounds like a sweet deal — perpetually new car, modest up-front costs — it does have downsides to consider. Since you don’t own the vehicle, each lease payment is a recurring financial transaction that nets you zero equity (meaning, you’ll have nothing to resell to recoup some of your investment). Or, suppose you fall in love with the car and want to buy it when your lease expires. Depending on the length of your lease and market conditions, the vehicle’s lease buy-out cost may be higher than its market value.

Other pitfalls to consider:




What About Buying a Car with Cash or a Loan?

Buying a car is different from leasing the vehicle because you will own the car outright immediately if you pay with cash, or once you’ve paid off your lender’s car loan. 

If you take out a loan to purchase the vehicle, expect to make a down payment that is 10% to 20% of its value. And while shopping around for the best rates, don’t forget to include your local credit union in the process. Credit union car loans are among the most competitive in the U.S., so you won’t need to look into how to refinance your car loan later. 

 

Advantages of buying a car

The most significant advantage to buying a car is that you own the vehicle outright once you have paid it off. Any future payments will be toward vehicle maintenance, like oil changes and new tires. If you maintain the car properly, gas costs aside, you could enjoy nearly expense-free driving for many years.

Other advantages to buying a car include:

 

Disadvantages of buying a car

One potential drawback with buying a car is you’ll likely need to spend quite a bit more upfront than if you lease. While the average down payment on a new car runs roughly 12% of its value, financing the remaining 88% means you’ll face higher monthly payments that you may need to spread over more years, costing you more in interest. As a result, you could end up paying significantly over the original sticker price.

Consider these potential disadvantages:




Further Resources on If You Should Lease or Buy a Car

Still trying to decide whether to lease or buy? Here are some unbiased sources to help with your decision:

The better you understand which financing approach is right for your budget and lifestyle, the closer you’ll be to making the car of your dreams a reality. Use our handy Credit Union Locator tool to find a credit union partner that’s happy to help with the process. 



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Did you know?

Credit unions are member-based not-for-profit institutions that prioritize helping local community members meet their financial needs, including auto loans. Unlike banks, credit unions do not need to turn a profit, which allows them to offer more competitive interest rates. And whereas banks approve loans based primarily on a consumer’s credit history, credit unions often make loans to help members with a mixed credit history to improve their credit track record.




Find the right Credit Union for you

There are more than 5000 credit unions to choose from across the U.S.