What are the differences between leasing and buying a car?

When you find yourself in need of a vehicle and are tired of borrowing your parents' or friend's car, it's time to consider obtaining your own.

Picking out a car that meets your needs and wants is the easy part. Financing the purchase of an automobile requires more thought and insight because of how big a purchase it represents.

Assuming you're in the market for a brand new car, you have two options in front of you: buying or leasing. Each comes with its own upsides and potential downsides, but ultimately, the decision is up to you to make.

What is leasing?

When you lease a car, you technically don't own it. Instead, you're essentially renting it by making monthly payments, plus interest. This option could be appealing if you think you might want to get a different car at the end of the contract or if you think your driving habits will change if you plan on moving or switching jobs.

Another benefit of leasing is that you may be able to get a car even if you don't have a lot of money saved up for a down payment.

However, there are some drawbacks to leasing a vehicle. To start, since you don't actually own the car, you're not building equity. So when the lease ends, which is usually around three years, you don't really have anything to show for 36 months of payments.

Additionally, you are somewhat restricted to how you use the car. Some leases give you mileage limits, such as 15,000 miles a year. Go over, and you'll have to pay a fee per mile. And if you're someone who is always tinkering with things, know that any alterations you make will have to be minor in scale because you'll have to return the car to the condition you obtained it in.

Woman buying a carIf you're in the market for a car, you can either buy or lease the vehicle.

What about buying a car?

Buying a car is the second option for you to consider. If you foresee yourself sticking with one car for years on end, buying could be the right financial move.

Other differences include the ownership of the car. Unlike when you lease, you'll be able to make changes to the vehicle as you see fit, there are no mileage limitations and Edmunds.com stated it is a more economical option over the long term.

But in order to buy, you'll most likely need to take out an auto loan. Not only will you have to pay back the principal balance, but also interest. This can translate into higher monthly payments than if you were to lease a car.

You'll also need to put down a larger down payment if you choose to buy a car. Doing so may delay the time table of when you expect to get a car since you'll need to save up beforehand.

Your desires and financial position will help you determine whether you should buy or a lease a car. In either case, you'll need to make sure you can afford the monthly payments without stretching your budget too thin.

For more information about smart ways to manage your finances, contact Landmark Bank.

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