Should I Buy or Lease a Car Right Now (2022)?
In today’s economic climate, prices are rising, and you may feel uncertain about your financial future. If you’re looking for a new vehicle, you’re probably wondering whether it’s better to buy or lease a car in 2022.
BluCurrent Credit Union gives you some tips on whether buying or leasing is the right choice for you.
The Pros and Cons of Leasing vs Buying a New Car
Your decision of whether or not to buy or borrow your next vehicle really depends on three major factors:
1. Monthly costs:
After paying various fees, including monthly insurance or semi-regular auto maintenance work, ask yourself: is it a profitable choice?
Circumstances change quickly; that’s especially true for our finances. Do you have flexible options in terms of choice when and if your personal finances change?
3. Overall, long-term costs:
At the end of the day, how much money have you saved or put towards your vehicle? Even if the price seems cheaper upfront, the overall costs could add up to be much more.
Before you make a decision, consider these key takeaways for the pros and cons of buying or leasing a vehicle:
Pros of Leasing a Car
- Low maintenance on a new vehicle
- Once the lease ends, return it and it’s off your hands
- The lease can include free maintenance services
- Tax write-offs for business owners
Cons to Leasing a Car
- Limited mileage (usually 12,000 miles per year)
- It costs more (in the long run)
- More fees to pay, especially if you can’t make the payments
- More upfront costs associated with a lease
Pros of Buying a Car
- You have equity in the vehicle (it’s an investment)
- Freedom to sell it at any time
- Able to customize it however you want
- Unlimited mileage
Cons to Buying a Car
- You’ll have to resell it
- Value fluctuates
- Longer loan terms (typically)
- Repair and maintenance expenses
Leasing vs. Buying, How Do I Make the Right Choice?
It depends on your lifestyle, driving habits, and financial situation. For instance: Do you have a long commute and a tendency to put a lot of wear and tear on your car? Consider going for a competitive auto loan instead of a lease.
Here are a few more factors to consider.
You trade in cars frequently.
If you’re constantly trading in your car for a newer, better model every few years, then leasing might be your best option. Experts tend to agree that the most cost-effective choice is to buy a car and hold onto it until it’s no longer drivable or repairs become too extensive.
You have a low credit score.
If your credit score is poor, chances are you’ll get a more expensive monthly car payment and lease payment. Of course, making a bigger down payment could lower your cost per month.
The Benefits of Leasing a Car
No Need to Resell.
Leasing a car is your best bet if you don’t want to worry about reselling it once you’re done. At the end of the term, you just drop your car off at the dealership and it’s off your hands.
No Maintenance Worries.
Your lease paperwork might include a maintenance package that covers free tune-ups, tire rotations, oil changes, and other services. Since you’re driving it during its best years, you don’t have much to worry about regarding costly repairs.
New Model and New Features.
You get to drive a car during the best years of its life and get access to the latest safety features and conveniences offered by newer models. Buying a vehicle is typically more expensive if you want the same convenient features.
Potential Tax Benefits for Business Owners.
If you’re a business owner, leasing a car might be a favorable option because the IRS allows you to deduct appreciation and financing costs. On the downside, you’ll still have to pay state property taxes on your vehicle (even though you don’t actually own it).
The Drawbacks of Leasing a Car
Insurance Costs and Leasing Fees.
Leased vehicles often require comprehensive, total coverage, which can get costly. You should also watch out for fees. There are plenty of them.
- Acquisition fee, aka “administrative fee” or “lease initiation fee” - a fee charged to arrange the lease.
- Security deposit - it’s typically equal to one month’s payment.
- Early termination fee - the difference between what you owe and the car’s realized value.
- Disposition fee - a fee charged for the cost of cleaning and repurposing the car for resale.
Be careful that your vacations, road trips, Sunday afternoon drives, and daily commuting don’t add too much mileage. If you go over your allotted yearly mileage, you’ll be charged anywhere between 10 to 15 cents per extra mile driven.
Leases aren’t Flexible.
You’re locked into a payment plan for around three years. If you miss payments, you’ll get hit with fees pretty quickly. You cannot sell it, make modifications to the car or build up equity, as you do not own it.
You’ll Pay Without Ownership.
You still have to pay things like extraneous repairs and yearly property taxes, even though you don’t own it. If you fail to bring it back to the dealership in “showroom condition,” you’ll be hit with a fee.
The Benefits of Buying a Car
You Build Equity.
Once you buy it, it’s yours to own. You can choose to resell it or make any modifications you want. Leased cars are required to be returned in the same condition they were in at the time of the lease (with the exception of tinted windows).
Unlike a lease, there’s no mileage limit. Go on, take that cross-country road trip and family vacation without frequently glancing at the mileage gauge.
The Drawbacks of Buying a Car
Long-term Repair Costs.
Similar to owning a home, repairs are inevitable and costly out-of-pocket expenses. Ownership feels good until something breaks down and you’re stuck with the bill.
The car’s value can fluctuate. And as an owner, you’ll have to go through the hassle of trying to sell it to a dealer or individual buyer. If you need to sell a car and want to determine its value, reference our helpful NADA guides.
Risk of being “Upside Down” on the Loan.
The longer the loan term, the easier it is to get “upside-down” in it (where you owe more than the vehicle is worth). Be careful. If you can’t pay the difference, the debt gets transferred over to your most recent car loan. So you end up paying on both cars!
Additional Factors to Consider in 2022 Before You Decide
High demand and short supply mean one thing: high prices. Due in part to the effects of COVID-19, supply-chain disruptions, and shortages of semiconductors and computer chips, car companies aren’t offering as many financial incentives to leasing. Many leases are near the same price as you’d pay for financing.
There is a bit of a car shortage with domestic auto dealers in the US, according to the U.S. Bureau of Economic Analysis. Not to mention the fact that most dealerships have lowered the mileage limits now. They’ve dropped from 12,000 miles a year to 10,000.
Tips on Choosing a Lease Payment or Auto Financing
Get a Longer Loan Term.
If your credit score is low, you’ll have a hard time finding a good financing or lease option for your budget. If you want an affordable monthly payment, choose a lease. But if you’re dead set on a purchase, go with a longer loan term (120 months).
Personal finance experts agree that you should look into negotiating your lease rate down from the initial asking price. You’ve got nothing to lose. Besides, the worst answer you can hear is a simple “no.”
Not Leasing? Here are Some Alternative Options
- Get a low-interest auto loan from a local credit union instead of a bank
- Purchase a certified pre-owned car (from a franchise dealership)
- Get a longer loan term (72 month-long financing)
- Buy a less-expensive new car (jump on a deal or sale)
- Find a well-maintained used car
Finance Your Next Car with BluCurrent Credit Union
At BluCurrent, we help you get flexible, competitive rates for auto loans that work with your budget. Take a look at our auto loan calculator to get an idea of what rates you can expect. You can also apply online or search for vehicles directly from our website (no trip to the branch or dealership necessary!) If you prefer to speak with one of our experts, launch a video banking call and a friendly member service representative will be happy to help guide you through the process.