To lease or not to lease… that is the question. You can find some of the best deals on cars at the end of the year or beginning of the year. When going to look for new cars, however, there is one question you must ask yourself: am I going to buy a car or lease a car?
There is a great debate over leasing versus buying a car. There are several proponents for both sides, so I’m going to walk you through some pros and cons for each side and then give you my opinion on what I think is the best option. To help make this more realistic I will be using the 2018 Ford Explorer Limited as an example throughout.
Leasing
There are plenty of reasons people lease cars. According to US News, “When you are purchasing a car, the loan value is based on the entire cost of the vehicle, minus your down payment and trade-in value. When leasing, however, you’re only financing the depreciation that occurs during the lease term (most commonly three years), plus fees. At the end of the lease term, you simply return the car to the dealership.”
In essence, your monthly payment when leasing is usually lower than your monthly payment when financing. However, one important thing to note here is that while your monthly payment over the 3 years you are leasing that car are lower, after those 3 years are up, you will need to lease another car; thus the payments continue on and on and on.
Many people like leasing rather than buying because they enjoy getting to experience a new car every 3 years (or whatever lease term they choose). If you are one of those people that always needs a new car to experience newer features or you just simply get bored driving the same car, then leasing is for you because it does not make sense to buy a new car every 3 years.
If you tend to put a lot of mileage on your car each year, whether you have a long commute to work (like me) or you take your car for weekend trips often or whatever other reason, then you may want to reconsider leasing a car.
There are typically mileage restrictions when you lease a car, such as 10,000 or 15,000 miles each year. If you go over your mileage limit, you are then charged a penalty fee somewhere along the lines of 20-to-25 cents per mile over that limit. To put this into dollars, if you go over your mileage limit by 5,000 miles at 25 cents per mile, you will owe the dealership $1,250 at the time of trade-in.
One additional thing to remember when leasing is that while your car is generally under warranty during the lease-term, you are still required to cover the costs of maintenance. Maintenance does now just mean gas. Maintenance includes gas, oil changes, car washes, tire replacement and any other upkeep costs.
Buying
When it comes to buying a new car, most people do so through financing rather than buying it outright because that’s quite a big load of cash to put out at once. Therefore, when determining whether to lease or buy, you have to factor in more than just the cost of the car. When you finance a car, your interest rate changes depending on the length of time you are financing for.
If you do not care about always having the newest high-tech features, then you should consider buying your car. As mentioned above, monthly payments associated with financing a car are typically higher than a monthly lease payment; however, don’t let this deter you.
Your payment may be higher, but once paid off, you only have to worry about maintenance costs or repair costs if/when anything goes wrong with the vehicle. Repair costs are generally covered under the warranty when leasing, but maintenance is not covered in either case.
When you buy a car, you have a lot more flexibility because you own it. You don’t have to worry about any mileage restrictions. You can drive your car as much as you want without having to even look at the odometer.
You also have more flexibility in controlling your monthly costs when it comes to financing versus leasing. You can put a larger deposit down to keep your monthly payments lower when financing. While you can do this same thing when leasing, there is no benefit to putting down money when leasing as you then are just paying more to “borrow” something than you have to. You can also pay your car loan off quicker if funds become available to do so and, therefore, avoid paying interest on those remaining months left in your financing period.
Real Life Example:
As of 12/29/2017, the total cost of a 2018 Ford Explorer Limited is $43,085.
Lease
Down payment: $5,000
Destination fee (due at signing): $995
Incentives: ($2,250)
Monthly payment for 36-month lease with 10,500 mile restriction: $351
Total cost to lease: $18,631
Finance
Down payment: $5,000
Destination fee (financed): $995
Incentives: ($1,250)
Monthly payment over 60 months at 2.9% APR: $661
Total cost to buy: $44,660
So, should you lease the 2018 Ford Explorer Limited or should you buy it? My opinion is buy a 2015 or 2016 Ford Explorer. Your car depreciates significantly the second you drive it off the lot, so let someone else drive it during that period and take advantage of cars in great condition that are only a few years used as some of the best deals are cars that are coming off leases that the dealership is looking to sell.
Sure, the newest models have slightly newer technology and other features, but if you’re always a few years behind then you will still enjoy the upgraded features from what you previously had. Try to keep your cars for 10 years (or more if you can) and over 100,000 miles before trading it in for a new one. This option offers the best financial benefit in my opinion!
