Buying vs. Leasing An Acura in Libertyville IL
Buying vs. Leasing a Car
Understanding the differences between buying and leasing is key to making an informed vehicle purchasing decision that makes the most sense for your finances, lifestyle, driving routine, and personal preferences.
The following compares the pros and cons of buying and leasing, the economics of each, and why you might choose to finance one way or another. Each option has distinct advantages and drawbacks that can significantly impact your budget and driving experience over time.
BUYING
Who Owns It
You can buy a car with cash or finance it and make monthly payments. Either way, it's yours. This ownership means you have complete control over the vehicle and can modify it however you like without restrictions.
If you finance a vehicle, you'll have to meet the obligations required by the lender, like a certain down payment amount and timely monthly payments. If you don't, they have the right to repossess the vehicle. However, once the loan is satisfied, you'll receive the title and own the car outright with no further obligations to the lender.
Most drivers don't have the cash to pay the full price of a vehicle upfront, so most people choose to finance through a dealership, bank, credit union, or private lender to cover the vehicle's value, plus interest, over a period both parties agree on, typically three to six years. Shopping around for the best interest rates can save you thousands of dollars over the life of the loan, making it worthwhile to compare offers from multiple lenders.
Lenders will look at your income, your credit score, and the cost of the vehicle to determine the terms and interest rates on your auto loan. After negotiating and signing some paperwork, the vehicle is yours to do as you please. A higher credit score typically qualifies you for lower interest rates, while a lower score may result in higher rates or require a co-signer.
Upfront Costs
If you're financing a car, the bank will probably request a down payment as a form of security. Your down payment should range between 10% and 20% of the vehicle's MSRP to secure your car purchase. A larger down payment reduces your loan amount and monthly payments while also demonstrating financial stability to the lender.
You can also trade in another vehicle and use any equity toward your down payment. The amount of the down payment is usually based on the lender's requirements and your credit score. Additionally, you'll need to factor in taxes, registration fees, documentation fees, and insurance costs when budgeting for your purchase.
Future Value
New cars depreciate over time. In fact, within the first year of ownership, a vehicle will lose nearly 20% of its value, according to Trusted Choice Insurance. The steepest depreciation typically occurs in the first few years, with the rate slowing down as the vehicle ages.
The amount a vehicle depreciates varies depending on its market value, make, model, and even the year it was manufactured. Luxury vehicles and those with poor reliability ratings tend to depreciate faster than economy cars with strong reputations for durability.
Despite depreciation, buying a car is a great way to build equity, as long as your payments outpace the rate that its value decreases. You can use this equity to pay for your next vehicle when you're ready to get one. This equity acts as a financial cushion and gives you flexibility in your future vehicle decisions.
Your vehicle will be worth whatever you can sell it for in the future and that depends on how well you maintain it. (Be smart and protect your investment with regular scheduled maintenance by a factory-authorized facility!) Keeping detailed maintenance records and addressing issues promptly can significantly impact your vehicle's resale value.
End of Payments
Once you've paid off what you owe on your contract, that's it. Your vehicle is 100% yours. The lending institution will send you a lien release as proof that the vehicle is paid off and all yours. At this point, you can continue driving the car payment-free, sell it, trade it in, or use it as collateral for other financial needs.
LEASING
Who Owns It
You don't own the car when you lease. You're paying for the use of the vehicle, but the finance institution that you leased it through actually owns it. This arrangement means you're essentially renting the car for a predetermined period, typically with mileage and condition restrictions.
This is usually why you pay less per month in a lease than if you were to buy the car. The monthly payment covers the vehicle's depreciation during your lease term plus interest and fees, rather than the full purchase price.
Leasing also protects drivers from unexpected drops in value from unexpected circumstances. For example, if the vehicle you lease depreciates due to a recall, this won't affect you the way it would if you purchased a vehicle. The leasing company absorbs the financial risk of major depreciation events, giving you predictable costs throughout your lease term.
Upfront Costs
Leases often don't require any type of a down payment. All you usually have to pay is the first month's payment, a security deposit, the acquisition fee, and other fees and taxes. This lower upfront cost makes leasing attractive to drivers who want to preserve their cash flow or don't have substantial savings for a down payment.
But, as with a purchase, if you want to lower your monthly payments, you can always pay more upfront. Making a larger initial payment, sometimes called a "cap cost reduction," can significantly reduce your monthly lease payments throughout the term.
Future Value
In most leases, you don't end up owning a vehicle. Therefore, you won't be responsible for selling it. That's the financial institution's job. This eliminates the hassle of finding buyers, negotiating prices, or dealing with the uncertainty of your vehicle's market value at the end of your ownership period.
However, you may have mileage limits—typically between 12,000 and 15,000 miles per year—and wear and tear guidelines that, if you exceed them, could cost you extra money when you turn your vehicle back in. These restrictions are designed to preserve the vehicle's value for the leasing company, and violations can result in substantial fees at lease end.
Most lease terms range between two and three years, which may be attractive to drivers who like to drive a new car every few years. Leasing could also allow you to drive more car for less money, especially if you can only afford to buy a car at a lower market value. This arrangement lets you experience newer technology, safety features, and styling without the long-term financial commitment of ownership.
End of Payments
Most people return the vehicle at the end of the lease term, but some like to purchase it during their lease or at the end. Others like to trade it in before their lease is over. The purchase option, often called the "residual value," is predetermined at the beginning of your lease and represents the vehicle's estimated worth at lease end.
Just ask us about these different options before signing any paperwork and we'll make sure that you have your lease set up the way you want it. Understanding all your end-of-lease options upfront can help you make better decisions throughout your lease term and avoid unexpected costs or limitations.
Best Cars to Lease
The best cars to lease are those with the best book value after the term of the lease. Since they depreciate less, you pay less. Vehicles from luxury brands like Lexus, Toyota, and Honda typically hold their value well, making them excellent lease candidates.
Review the lease ratings to see which cars retain their value. Industry resources like Kelley Blue Book and Edmunds provide residual value predictions that can help you identify which vehicles offer the most favorable lease terms.
Buying vs. Leasing: Which Is Right for Me?
Shopping for a new car is always exciting, but it can be difficult to choose between buying and leasing a vehicle. If you're on the fence over buying or leasing, talk to a car dealership near you to discuss your options. Consider factors like your annual mileage, how long you typically keep vehicles, your budget constraints, and whether you prefer predictable costs or building equity.
They'll go over each option and help you find a form of payment that makes the most sense for your financial situation. A knowledgeable finance professional can run the numbers for both scenarios and show you the total cost of ownership versus leasing for your specific circumstances.
The finance center at McGrath Acura of Libertyville offers a variety of leasing and financing options for the new Acura and used vehicles in our inventory. If you're ready to lease or buy your next vehicle, contact us online. Our experienced team can walk you through current incentives, interest rates, and lease specials to help you make the most informed decision for your needs and budget.