Watch This Before Buying or Leasing a Car: Don't Make a Costly Mistake!

Welcome back to another episode of We're Talking Money. I'm Dustin Hocken. Leasing a vehicle has become more and more popular over the years. According to ConsumerReports.org, more people are leasing than buying than ever before. Why is this happening, and more importantly, is it the right choice? Let's look at the pros and cons of leasing versus buying.

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Leasing a vehicle can be a very attractive option versus purchasing a depreciating asset, but what you need to realize is there are pros and cons to leasing a vehicle. Let's go through those now.

Number one, why people lease: well, the monthly payment's going to be lower, which means that you can afford a better car. Especially today in 2023, a vehicle is somewhat of a status symbol, and if you can drive a nicer car for a lower payment, well, most people are going to do that.

Number two, you're someone who wants to drive a new car every 2 to three years. Well, with a lease agreement of only two to three years, you'll be turning in that vehicle and driving a new car off the lot.

Number three, smaller maintenance and ongoing cost. Some lease agreements will even throw in oil changes and tire rotations, so that's one less thing you have to worry about when you're leasing a vehicle. Also, if you think about it, you're in the first 30 to 36,000 miles of a car. Well, it's unlikely that you're going to have too many problems, and if you do, they'll probably be covered under the manufacturer's warranty.

Number four, you might be working from home. After COVID, more and more people started working from home, and I think that's probably why the lease agreements have gone through the roof. With lease agreements, one of the biggest cons is the amount of miles that you can drive per year. I'll talk more about that later, but if you're working from home, you're not commuting back and forth to work, you can probably stay under that minimum mileage per year.

Number five, you don't have to worry about the value of your car. When you purchase a vehicle, you might be thinking, gosh, what my car is worth, maybe I don't want to put more miles on it because it's depreciating the asset. With a lease, you have a contract that's going to stipulate the value of your car when you turn it in. At the end of your lease, you just drop off your keys and you're done.

Leasing may seem like a no-brainer after we just discussed those five points of why it's attractive, but there's also some cons you should be aware of.

Number one, you'll never own the vehicle. It's the number one problem with leasing; you're always going to be renting. Now, if you're one of those people that want a new car every two to three years, leasing's probably the way to go, but just know it's going to be more costly financially long term by leasing and renewing a lease every two to three years compared to purchasing a vehicle and driving it till the wheels fall off.

Number two biggest con of leasing a vehicle: you only have a certain amount of miles you can drive per year. So most leases are 10,000, some are 12,000, and some are 15,000 miles per year. Now, if it's 15,000 miles per year, you can imagine that the monthly payment's going to go up. If you're commuting a long ways back and forth to work, then you're likely going to go over these miles throughout the course of 12 months. Now, if you do go over these miles, it's going to be a hefty price. Anywhere from 10 to 50 cents per mile over your agreement is what you're going to have to pay when you turn the car in at the end of the lease.

Now that we've talked about the pros and cons of leasing, let's talk about buying. So when should you buy? If you're the type of person that doesn't need a new car every few years, then purchasing a vehicle is probably the right thing. The longer that you hold a vehicle, the more cost-effective it is to drive. The cheapest way to drive is to purchase a vehicle, pay it off and keep it for a very long time. After you're done making payments, you want to keep the car for as long as you can, until it becomes cost ineffective because the repairs are too high.

Number two, why you should purchase a vehicle: you need to drive a lot. Let's say you commute back and forth, or you're traveling over a territory as a sales manager. Well, if you're going to be putting a lot of miles on your vehicle, you're probably not going to be able to lease. We can usually lease up to 15,000 miles per year, but again, 15,000, that's a high lease, so you're going to be paying more monthly.

The other piece too is that, let's say that you are in a normal lease, say 12,000 miles per year, and you're driving 18,000 miles per year. May not seem like it's a big deal, but again, it's about a 50% penalty per mile that you're over. So at the end of three years, all of a sudden that's going to cost you $99,000 when you turn in your lease.

And last, if you want to customize your car, if you want to put modifications on there, then you're going to want to purchase. You wouldn't want to lease in this situation. A lease will let you tint the windows and turn it back in, but really what the lease agreement is going to say is they want the car back to a normal condition when you turn it in. When you own your own car, you can do whatever your heart desires.

Over the long run, leasing is certainly more expensive than buying, but that doesn't mean it's automatically the wrong decision. If you're making a decision whether you should lease or buy, please know that you don't have to go at it alone. Reach out to our team at OmniStar and see which option is best for you.

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