Should you buy or lease your next car?

Knowing the difference between buying and leasing a new car can help you find a vehicle you love within your budget. 

In the face of making a large choice, it seems like everyone offers their opinion on whether it’s better to purchase or lease. Some people argue that buying a car is better because you own the vehicle and can do what you want with it. Others prefer to lease because they don’t have to worry about maintenance costs. But in the end, you have to choose a vehicle and a payment that's comfortable for you.  

Learn a little more about your financing options before you head to your local auto dealership to take some of the pressure out of the decision-making process.

Resources for Lake Trust members.

With our AutoSaver program¹, you have to option to get features of both buying and leasing. Like buying, you can use an AutoSaver loan on either new or used vehicles and the car is titled in your name. But you can either upgrade to something new or finance the balance and keep the car at the end of the term, similar to a lease.

As a Lake Trust member, did you know that you can even shop from home with our new online car shopping tool¹? Search inventory at local dealers and compare vehicles in one easy spot.

Loan or lease terms.

The amount of time you plan to keep a vehicle can be a big deciding factor when reviewing financing options. If you like having a new ride every few years, then leasing might be a good option. Just keep in mind, if your driving needs change and you need to cancel your lease before the term is up, you’ll likely have to pay an expensive termination fee.

But if you hope to keep your vehicle for a long time, purchasing a car may be the way to go. Even if your needs change in a year or two, you still have the option to trade in your car to get a new one. And with the ability to choose a loan term up to 84 months, you may be able to get a lower monthly payment than you would with a lease.

If you’re not sure which option is best for your budget and lifestyle, an AutoSaver loan might strike the right balance between your wants and needs. You can drive the same vehicle for a few years and then trade it in. Or you can finance the balance at the end of the term and keep the vehicle.

Down payment.

With all three vehicle payment options, you typically don’t need to make a down payment. However, even though a down payment usually isn’t required with a lease, you’ll likely need to provide the first monthly payment, a security deposit, and pay other fees. And if you’re trying to lease a car and don’t have great credit, you may be required to provide a down payment after all.

Making a down payment when you purchase a vehicle can be beneficial to you. It could help you lower your monthly payments and reduce the amount needed for your auto loan, saving you from paying interest charges. The more you put down, the bigger piece of ownership you have in the vehicle.

As a general guideline, try to make a down payment of around for twenty percent of the purchase price of the vehicle.² If you plan to put less than that (or even nothing) down, you might want to purchase GAP insurance. GAP could protect you from a potential financial loss if your vehicle is stolen or in an accident. This insurance offers extra peace of mind by filling in the 'gap' between what you owe and what your insurance company pays out.

Taxes and fees.

When you purchase a vehicle, you have to pay sales tax on the final purchase price. You can usually roll this cost into your auto loan, so you don’t have to have the cash on hand. With a lease, you’ll most likely pay sales tax on the monthly payments, not the full value of the vehicle (depending on which state you lease in).³ Depending on the length of your lease, that means you could pay fewer taxes overall. However, you’ll also want to consider any required fees from the dealership. When you purchase a car, you can often decline additional services, fees, and coverage for your vehicle.

Maintenance costs.

Depending on the age of a vehicle and how often you drive, maintenance and repair costs on a car can add up quickly. Consider the cost of regular oil changes; replacing, rotating, and balancing tires; replacing oil and cabin air filters; and more. One perk of leasing is that the dealership often covers the cost of maintenance and repairs on your vehicle so you don’t have to worry about it.

Mileage limits.

If you love to take long road trips or if you do a lot of driving to commute to work, then purchasing a vehicle might be a better option for you. Most leases have a yearly mileage limit, and your limit may depend on your budget. Some dealerships offer higher mileage lease terms for a larger monthly payment. But if you have a short commute, don’t drive a lot, or frequently use public transportation, then a lease or an AutoSaver loan may be worth checking out.

Remember, your car needs to fit your lifestyle, not the other way around.

Pros and cons overview.

Buying a car: Owning your vehicle gives you more freedom to drive as often and as far as you want without having to worry about mileage limits. And it feels good knowing that you worked hard to find and purchase a vehicle that you can keep for as long as you’d like. Of course, owning your own car does come with drawbacks, like being responsible for all of the maintenance and repairs.

Using an AutoSaver loan: This option gives you the best of both worlds: You own the vehicle, but you can trade it in for something new at the end of the loan term. Or if you love the car, you can finance the balance and keep it. However, during your AutoSaver loan term, you do have to abide by mileage limits. And you’re responsible for any maintenance or repairs to the vehicle.

Leasing a car: Your auto insurance may be more expensive on a leased vehicle vs. a vehicle you own because the dealership may require more insurance coverage levels than you might pick on your own. And dealership fees may make your monthly payment higher than if you purchased a vehicle. But if you don’t want to worry about maintenance, have a short commute, or like the idea of getting a new vehicle every few years, then leasing may be a great option.

The power to choose.

You have the power to decide which type of vehicle financing option will work best for your lifestyle and budget. And if you need help making a decision, remember our team is here to help. We can walk you through the process to get pre-approved for an auto loan or start a pre-approval for an AutoSaver loan. We’re happy to review your budget and discuss financing options.

Get ready for a new ride!

¹Third-party website. Lake Trust Credit Union is not responsible for the content, availability, security, or compliance of any linked third-party websites. In addition, the site’s privacy policies may differ from those of Lake Trust.

²Nelson, J. (2023, January 09). How Much Down Payment Is Needed For a Car? Investopedia. Retrieved from https://www.investopedia.com/how-much-down-payment-is-needed-for-a-car-5184453  

³Anderson, J. (2013, October 1). Five Myths About Leasing a Car. Kiplinger. Retrieved from https://www.kiplinger.com/article/cars/t009-c004-s001-five-myths-about-leasing-a-car.html