Purchasing Versus Leasing Your Next Vehicle

When acquiring a new car at Dick Smith INFINITI, you have the option to purchase or lease. Each option has its advantages and disadvantages, which largely depend on what is important to you as the customer. To help you make a well-informed decision, this guide explores leasing—along with its pros and cons—compared to the more conventional purchase transaction. 

What Is Leasing? 

The term “lease” has long been associated with renting property like a home, apartment, or office; this is essentially what occurs with a vehicle lease. You agree to rent the use of a new vehicle for a specific period, typically between two and four years, during which you will make monthly payments. These payments are partly determined by an estimate of the car’s value at the end of the term, known as its residual value. Ironically, this can result in lower payments for cars with higher forecasted resale values.  

When a manufacturer is eager to sell a model, it may enhance the residual value, leading to reduced payments for the lessee. The manufacturer hopes for the best regarding the car’s actual value at the end of the lease term.  

Most leases permit you to pay money upfront, similar to a down payment, which helps reduce the monthly payments. The value of a trade-in vehicle is often utilized for this purpose. At the end of the lease term, you have the option to purchase the car for its originally stated residual amount. Alternatively, you can return the car to the dealer, and with a small amount of paperwork, simply walk away. The most popular choice is to lease a newer model. 

What Is Purchasing? 

This is like any other purchase—the seller receives the full amount upfront, and the purchased item is wholly owned by you. However, due to the associated costs, most new car purchases are accompanied by finance loans, in which the purchaser covers a down payment (typically about 20%) and then makes payments over a specified period until the vehicle loan is fully paid off. The purchaser can sell the car at any time during the financing term but must pay off any remaining amount owed on the loan from the proceeds. In long-term loans with small down payments, some may find themselves “upside-down” for a time, meaning they owe more than the car’s value.  

Leasing Pros 

• Lower Monthly Payments: Lease payments are typically lower than loan payments for the same vehicle since you are effectively only paying for the vehicle’s depreciation during the lease term rather than its entire value. Put another way, this generally enables you to get a more expensive vehicle for the same monthly payment. 

• New Car Every Few Years: If you enjoy driving a relatively new vehicle with all the latest technology, a lease makes this both easy and more cost-effective, as you do not have to take a depreciation hit and go to the trouble of selling and purchasing transactions. 

• Warranty Coverage: Because leases are often covered under a vehicle’s warranty, you seldom have to worry about out-of-pocket repair costs.  

• Tax Benefits: In many states, you only pay sales tax on your monthly lease payments rather than on the full purchase price of the vehicle. There are also certain tax benefits when leasing a vehicle used for business.  

Leasing Cons 

• Mileage and Condition Policy: Lessors want the car to be returned in a condition in which its worth matches or exceeds the residual value. Thus, they have mileage limits and rules regarding maintenance and expected level of wear. Fees can occur if a vehicle is returned with excessive wear and tear or is over the mileage agreement stated in the lease. 

• No Period of No Payments: As long as you are leasing, you are making monthly payments. It is easy to upgrade to a new vehicle regularly by leasing, but the payments will always be there. 

• Timing constraints: The lease term is firm. There can be fees if you wish to turn in the car in advance. You must turn the car in at lease-end or have the money on-hand to purchase it. 

• Usage Constraints: You do not own the car, which limits your ability and incentive to customize it as you desire. 

Purchasing Pros 

• Ownership: The vehicle is yours. You have the freedom to keep it as long as you want and sell it on your terms. You can choose to sell the car when it is the most advantageous. For example, selling a hybrid when fuel costs have spiked likely will raise its value. 

• Long-term cost-effectiveness: Owning a car can be more economical in the long run, particularly if you keep it long after it has been paid off. 

• No Mileage Restrictions: Owners are free to drive as many miles as they wish without facing extra charges. This is particularly helpful if your circumstances change, resulting in a longer commute. 

• Customization: Again, the vehicle is yours. You can modify or customize your vehicle as you desire. 

• Longer Payment Options: Leases are rarely longer than four years. Finance payment options can go longer to lower your monthly payments, although this will increase interest costs and can increase the risk of being upside-down. 

• Dick Smith Advantage:  When purchasing, you can keep your vehicle as long as you want and take advantage of the Dick Smith Advantage 200,000-mile EasyCare Powertrain Limited Warranty. 

Purchasing Cons 

• Depreciation Impact: All cars depreciate, but owning puts the cost on you rather than your lessor. This is particularly an issue if you trade-in for a new vehicle frequently.   

• Long-term repair costs: After the warranty period, you will be responsible for repair costs unless you opt for an extended warranty. 

• Assuming you are financing: 

• Must Secure Financing: This can be done through the dealership or from an outside source; either way, it equates to an additional step when it comes to acquiring a vehicle.  

• Higher Payments: Generally, monthly payments will be more than lease payments for the same vehicle.  

Your Best Option Depends Entirely on You 

There is no single answer to which option is best, as it largely depends on your preferences and circumstances. Here are a few final guidelines regarding which choice may suit you best.  

• New Vehicle Desire: If you appreciate having a new car with the latest features and designs, leasing can be more cost-effective and easier for keeping you in a new car. However, those who wish to personalize their vehicle are better off purchasing. 

• Financial and Transportation Stability: Leasing assumes you have a secure sense of your driving habits and that you don’t expect your work, home, or vehicle needs to change significantly during the lease term. 

• Lower Term Costs: Leasing generally entails lower initial and monthly expenses, although you are more committed to those costs for the duration of the lease.  

• Financial Risks: Financing incurs higher upfront costs, and defaulting on a loan is detrimental. However, with a purchase, you generally have more options if your financial situation changes.