Do you really want to pay on something you’re not going to own?
That’s the question you should ask yourself when considering whether to buy or lease a vehicle.
Rick Musial, Vice President of Underwriting at America’s Car-Mart, recently answered some questions about this topic and provided some sage insights into buying versus leasing. Early in his Car-Mart career, Rick managed a dealership and worked hard to ensure he found the right used vehicle at the right price for his customers.
For starters, Rick recommends thinking long term. “There’s simply no advantage to leasing a vehicle – for the dealer, yes, but not for the customer. It’s simply a matter of dollars and sense,” says Rick. “Also, I would not recommend any of my family members to lease a vehicle. Owning is better.”
Here are Rick’s answers to frequently asked questions about buying versus leasing a vehicle.
Q. What is the number one reason for buying over leasing a vehicle?
A. First and foremost, ownership. When you buy, you’ll own the vehicle at the end of your contract term. You’ll have an asset. The vehicle is yours to sell, trade, or to keep driving it. When you pay off the car, you won’t have the expense of a vehicle payment like you would with a lease.
If you drive a leased car, you’re making a payment. At the end of the lease, you don’t own the vehicle. And, you’ll have to turn in the car when your lease is up.
Q. What are the benefits of buying a vehicle?
A. You’re paying on something that will be yours when you pay off your vehicle. You can sell it, keep it, trade it in or give it to a family member. You can do with it what you want. At the end of buying, you’ll have something that is worth something.
Plus, you can drive your car as much as you want because you’re making payments to own the vehicle. There are no mileage limitations like on a lease. You can also customize the vehicle such as tinting your windows or adding certain kinds of wheels and tires.
Most importantly, buying is going to save you money over the long term on your overall cost of vehicle ownership over leasing. Buying is cheaper in the long run.
Q. What are the disadvantages of leasing a vehicle?
A. It’s not your vehicle, so you’re restricted with what you can do with it. At the end of your lease, it’s not your vehicle. The major drawback is that you don’t acquire any equity in the vehicle. You have nothing to show for all your monthly payments.
A vehicle lease includes mileage limitations, typically limited to 12,000 miles per year. If you go over your mileage, you can get hit with excessive financial penalties.
When you turn a lease vehicle in, the leasing company is going to look at it for wear and tear. This could include hidden charges you may not have been aware of. Sometimes there are restrictions on how to use the vehicle. For example, you may not be allowed to drive for Uber or Lyft or use it for commercial use.
When your lease contract is up, the leasing company may allow you to buy the vehicle, but it’s usually for a substantial lump sum payment.
Some companies may require a down payment for a lease vehicle. So, it doesn’t make sense to put too much down on a vehicle that you won’t own. Finally, sometimes your insurance is higher for a leased vehicle.
Q. What should I consider when deciding to buy or lease a vehicle?
A. The biggest advertised benefit of leasing is that you will see a lower monthly payment, and it’s typically because you’re only paying for a portion of the vehicle because you won’t own it at the end. A three-year lease could be $30 or $40 cheaper per month, but you’ll be paying more for the vehicle.
With most leases, the sales tax is financed into the monthly payments. When buying, sometimes the sales tax is financed into the total price of the vehicle. Monthly car payments are based on the sale price of the vehicle, interest rate, and the number of months it will take to repay the loan.
So, the idea is to think long term, not short term. Don’t necessarily think about the lower monthly payments. The slightly lower monthly payments will cost you more in the long run. And, there’s a lot of hidden ways you end up paying more money.
Q. Is it unwise to lease a vehicle?
A. Yes, the lower monthly payments on a lease may be enticing, but it’s harder to get ahead then if you decide to buy.
Of course, when buying a vehicle, the shorter the loan the better. The longer the term of the loan, the more you’ll pay in finance charges. It’s worth paying a little more each month to save on the total cost of the vehicle.
When you can pay off your vehicle in three years or shorter, you’ll have something that is worth something. You’ll have equity for a trade-in, which will help with the amount of financing on your next vehicle. Soon, you’ll be paying little to no interest because you’ve paid into the equity.
Q. Does leasing include interest, and how does that compare to buying at Car-Mart?
A. With leasing, it’s a hidden interest. Calculations are factored into the lease contract. There is a charge on a lease that mimics the financing charge.
Car-Mart is transparent with telling customers about interest. Our finance terms are transparent – you can see exactly what you’re paying for.
Q. What about maintenance and service contracts for leasing?
A. It’s the same as buying and it depends on where the lease is coming from and the age of the vehicle. If you’re leasing a brand-new vehicle, it may have a factory warranty. If you’re leasing a used vehicle, service contracts will be available.
At Car-Mart, we offer service contracts that cover most parts. We have you covered to keep you on the road.
Q. What fees are due at the end of leasing or buying a vehicle?
A. If you are leasing a vehicle, you could incur fees at the end of your agreement if you’re over on your mileage or if there is excessive wear or tear or damage to the vehicle. That is money out of your pocket right then and there. Plus, if you try to end the lease early, there are penalties. You can’t just walk away from a lease.
There are no fees for buying. The vehicle is yours!
The choice is yours – buying over leasing
“You’ll save money over the long run when you buy. You can drive the car as much as you like. You’ll have more flexibility since you can sell the car whenever you want. You can trade-in your car on the next car you buy,” concludes Rick. “And remember, when you make your last payment, the vehicle is yours!”
Want to know more about the financing process at Car-Mart, check out our blog, “Four Easy Steps to Car-Buying and Financing at America’s Car-Mart.”
If you have bad credit or no credit, Car-Mart is here to help. Let us put you in a clean, affordable, quality, used vehicle today. Apply online. Check out our inventory online at a location closest to you.