If you’re in the market for a new car, you have a lot of options. But two of those options—leasing vs. buying—leave many people confused. Below are a few things you need to know about leasing your car versus buying it.
You Don’t Own It
When you buy a car, you own it and get to keep it as long as you like. However, when you sign a lease agreement, you are only borrowing the vehicle and must return it (or buy it out) by the end of your lease agreement.
Payments made under a lease agreement are reported to the credit bureaus just like they would be if you were buying the vehicle.
You don’t have any equity in a leased vehicle. When you sign a lease agreement, you agree to pay for the vehicle’s depreciation (plus rent charges, taxes, and fees). This makes your monthly payment cheaper but it also means that you leave the equity on the table. Despite your monthly payments, at the end of the lease you can’t extract any equity from your vehicle.
If you want to get out of a lease agreement, early termination fees can be so steep that it may be cheaper to keep your lease. On the other hand, if you bought your vehicle, then you can get out of the loan by selling the vehicle and using the revenue to pay off your loan.
Most lease agreements have strict mileage limits of 12,000 to 15,000 miles a year. If you go over that amount, you could be stuck paying for the difference at the end of your lease.
If your vehicle has any damage beyond normal wear and tear, you could be charged for the additional depreciation at the end of your lease.
When considering a lease agreement, know all the facts. While leasing a vehicle can save you cash every month, you give up ownership and the equity you would build with a vehicle you bought.