The Case for Buying
Buying a vehicle on credit is straightforward. Once you've paid off the loan, the car is yours.
Buying may make sense if any of the following applies:
- You have a reasonable down payment to put toward the purchase (100 percent financing may be available, but it means higher monthly payments)
- You can afford the monthly payments
- You plan to keep a vehicle for more than three years. In fact, the longer you keep the car, the more financially savvy buying is.
- You expect to drive more than 12,000 to 15,000 miles a year
- You want the flexibility to modify, trade or sell your car at any time
- Depending on the make and model, the car may depreciate (drop in value) rapidly—sometimes thousands of dollars as soon as you drive away from the dealer
- If you decide to sell the car before your loan term is up, you may owe more on the loan than the car is worth
- The longer you keep the vehicle, the less reliable it may become
- Once the dealer warranty is up, you'll have to pay for any mechanical defects or necessary repairs
The Case for Leasing
With leasing, you essentially rent the vehicle for the lease period, which is generally 24 or 36 months. Once the term is up, you turn in the car and walk away.
The biggest advantage of leasing is that it may offer more affordable monthly payments than a loan for a comparable vehicle. That's because payments are based on the anticipated depreciation of the vehicle over the lease term, not the entire value of the car. For example, a car worth $30,000 at the beginning of the lease may be worth only $18,000 at the end of the lease term. So the payment is calculated based on the $12,000 difference (plus interest and taxes, of course).
Leasing may make sense if you:
- Prefer driving a new vehicle with the latest technology every few years
- Want a more expensive vehicle than you can afford to purchase
- Expect to stay under the maximum mileage included in the contract (typically 12,000 to 15,000 miles a year*)
- Don't want to deal with repair costs after the warranty expires (most leases are designed to last the length of the vehicle warranty**)
- Don't expect to turn in the car before the lease term is up
- You don't own the vehicle at the end of the lease period (you may be able to buy it then, but you'll likely end up paying more in total than if you'd bought it in the first place)
- There's usually a significant financial penalty if you end the lease agreement before the term is up
- You may be charged for damage to the car beyond normal wear and tear
- If you go over the maximum mileage provided by the lease contract, you'll be charged a fee (typically 15 cents a mile**)
Making the Decision
Thoroughly read any loan or lease contract you're considering. You can estimate the monthly payments and total cost of each option using the Navy Federal Credit Union Lease vs. Buy calculator. Once you understand the pros and cons of buying and leasing, you'll be in a better position to make a decision that's right for you.