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Should I lease or finance a car?

Updated: Aug 4, 2020

It would be ideal to buy an older, reliable car that you can pay cash for, however, for some people the only way to get a car is through payments, so let’s proceed with the original question: should I lease a car or make payments on one?

Leases can seem appealing because of a small up-front payment and then relatively small monthly payments as well. The main two catches are the mileage limits and the normal wear-and-tear clause. When a driver turns the leased car back in, they could be charged overages for mileage and penalties for wear and tear. And then the driver has nothing to show for all those months of payments. At least when you finance a car, at the end of the loan’s term, you own the car. You have an asset.

Basically, if you really want to have a brand-new car every couple of years (or if you can write a lease off through a business), go ahead and lease. It’s not the right financial decision. It’s a lifestyle decision.

Financing a car has two main downsides, interest and maintenance. Oftentimes, dealers will have 0% or 0.9% interest promotions, which take interest off the table as a concern. Credit unions typically have great rates for car loans too. Once the car is paid off, the only cost is maintenance and repairs, which is still better than if you’d had a lease, turned it in, and proceeded to another lease. When the car is paid off, you can start putting the money you were making on payments into a savings account for your next car! That’s the biggest difference to me: there will be a time when you have no car payment, which will never happen if you only lease vehicles.

MoneyUnder30 wrote a piece that breaks down leasing vs. buying by the numbers that you can check out here.

My recommendation:

Buy a 2-or 3-year-old car that has already taken the depreciation hit and drive it for 10 years. Find a car that was babied by the previous owner. Make sure they did all required maintenance. Have a mechanic inspect it. Then, put half down and make payments on the rest for 5 years. Smugly enjoy the last 5 years of no car payment, knowing about 1 out of every 3 Americans have one.

To learn more about how car loans are affecting the US economy, check out Repossesion Recession.

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