Note: This is the second in a five-part series on How-to buy a new car. The other parts of the series can be found below:
Part 2: Buy or Lease?
One of the most fundamental new car buying questions is "should I buy, or should I lease?"
Speaking generally, there are two roads you can go down when buying a new car: taking out a loan to buy the car, or leasing. Unless you have the cash on hand to buy your new car outright, which is the best solution (it's the cheapest and easiest, and dealers love cash buyers as well), those are the two options for purchasing your next vehicle.
We'll start by breaking down the advantages that each path has to offer, and feel free to pick the one that makes the most sense for you.
It's easiest to think of a lease as a long-term rental; you pay a monthly fee to use the car, and at the end of the lease term the car is returned. There are a few caveats you should be aware of which we'll discuss when reviewing the advantages of a loan, so keep an eye out for those below. Leasing advantages include:
Buying is the more common route and it all comes down to one thing: equity and ownership. After you finish paying off the car loan, it's all yours &emdash; no having to return it to anyone, it belongs to you. The advantages to an auto loan/buying are:
Generally speaking, we prefer buying to leasing in most circumstances, especially for commuters who rack up the miles or for anyone planning on keeping their car for more than 3-4 years. Although most leases do offer the option to purchase the car after the lease term ends, you'll be starting to buy the car at its residual value (and probably with another loan) instead of having months of equity already bought into it.
There are a few cases where leases do make a lot of sense though — if you want the absolute rock bottom monthly payment, don't regularly drive a lot of miles, or plan on choosing a car that you won't want to drive for more than a couple years then a lease would be the smarter choice.