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Lease vs. Buy: Which Car Finance Option Is Right for You?


When the mileage read 45,000 miles on my car, I knew that the clock was ticking on my lease. I was strapped to a mileage cap on this particular car and now that I was over the limit I would start to accrue a 10 cent per mile charge. The purchase of the vehicle was my next logical step.

At this point, I had gone through both sides of the car buying experience. I had leased and owned, and because I have done both in succession, I got a bird’s eye view of how to make either work. If you’re deciding whether to lease or buy a car, here are some positives and negatives of each approach.

Leasing:

You don’t own the car:

Much like an apartment, the car you are leasing is not yours — you are renting it for an extended period of time. Since the car technically still belongs to the dealer, they are likely to give a lot of free standard maintenance to keep the car in working order, assuming you will be paying off and returning the vehicle and the car can be used for a new lease.

Payments tend to be lower:

Lease payments, on average, tend to be lower than car payments, as you are paying for the depreciation that occurs during the term of your lease. However, these low payments may come with a high down payment.

Mileage:

Lease deals operate on a mileage cap, meaning, as an example of this, you have three years and 45,000 miles before the lease ends. If you pass the cap after a year, you still need to pay out the mileage overage. The reason they charge this is to keep the mileage low for their potential resale. Thus they will charge a fee for miles over.

Buying:

You do own the car:

This is your vehicle, you own it and you are responsible for it. Many dealers will cover new cars under a warrantee for up to a certain mileage or time cap, meaning three years or 45,000 miles before the repairs fall on the owner. But there are some benefits to not worrying about the miles, as well as being in complete control of the vehicle for its lifespan.

Payments may be higher:

If you get a car loan through the dealer, they have the ability to add on fees that may not be present in a lease. According to a recent Nerdwallet article, payments on average can be about $530 per month for a new vehicle and $430 per month for a lease. Don’t forget to check rates among the competition. At Service Credit Union, if you find a rate that matches or beats ours, we will give you $100*.

Mileage:

No mileage cap means you can drive your vehicle to your heart’s desire but know that mileage is slowly eating away at its resale value and could impact your ability to trade or sell your car in the future. Regular maintenance is always a benefit to keep the car running as mileage increases.

Tips and Tricks:

  • When going in to purchase a vehicle, there are many tactics used to sell you a high-priced car. Consider getting your car loan from a credit union. They can offer fixed rates, and may be able to offer lower payments than a dealer’s financial services.
  • Negotiate on a down payment. Both lease and purchase vehicles will come in with a down payment requirement unless a deal is available, or you negotiate with the dealership, his can vary depending on the dealership. You are the customer, so use your negotiating power to talk the down payment down. You can always walk away or say no — they need your business, not the other way around.
  • Stash a savings account for car repairs. When you buy a vehicle, you are on the hook for repairs and they will come eventually. The best thing is to have those funds set aside in a savings account for a “just in case” scenario.
  • If you choose to lease, think about mileage before you sign for the car. Remember there is a cap — if you travel often for work or play, you will rack up miles quickly. For example, if you travel 50 miles to work back and forth each day, plus 25 miles every weekend to play soccer, in this example you would go over the 45,000 mile cap in approximately two years. If this is the case, consider purchasing a vehicle instead.

Do a lot of homework, remember to consider getting financing options through a bank or credit union, and be aware of miles on the lease agreement. In the end, it’s all about your wants and needs.

*Offer available on purchases and refinances of new and used cars or motorcycles. Refis of existing Service Credit Union (SCU) loans are ineligible unless at least $1,000 new cash out. Rate matching applies to competitors’ auto loans that have terms and conditions consistent with SCU’s 12-75 month loan rates; $100 offer is only available on terms of 60-75 months. If SCU cannot beat competitors’ APR on a 60-75 month loan, we will credit $100 to a qualifying member’s SCU account up to 30 days after original loan application with SCU. A qualifying member is a new or existing member who applies for and is approved for an SCU loan. Proof of applicant’s eligibility for the competitor’s rate must be provided; quoting advertised rates are not sufficient. Approval and rate match eligibility is subject to applicant’s creditworthiness. If total reportable income from SCU equals $600 or more in a taxable year, the credit union will issue you a 1099-MISC. Private, non-commercial loan rates and terms are excluded from this promotion. Offer subject to change without notice. Individual must be a member of Service Credit Union or eligible for membership.

This post is meant to be informational in nature and is not intended to be lending advice. This information does not consider the specific lending objectives, financials situations or needs of any specific individual who may read this post.