Buying vs. Leasing An Acura
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. Consider your long-term goals, budget, and how you plan to use your vehicle when making this important decision.
BUYING
Who Owns It
You can buy a car with cash or finance it and make monthly payments. Either way, it's yours to keep, modify, and use as you see fit.
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 paid off, you own the vehicle outright with no restrictions.
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 seven years depending on the loan amount and your financial situation.
Lenders will look at your income, employment history, your credit score, debt-to-income ratio, 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.
Upfront Costs
If you're financing a car, the bank will probably request a down payment as a form of security and to reduce their risk. Your down payment should typically range between 10% and 20% of the vehicle's MSRP to secure favorable financing terms for your car purchase. A larger down payment also reduces the cost of your monthly payment and the total interest paid over the life of the loan.
You can also trade in another vehicle and use any equity toward your down payment, which can significantly reduce your out-of-pocket expenses. The amount of the down payment is usually based on the lender's requirements, your credit score, and your financial situation. Those with excellent credit may qualify for zero-down financing options.
Future Value
New cars depreciate over time, with the steepest depreciation occurring in the first few years. In fact, within the first year of ownership, a vehicle will lose nearly 20% of its value, according to Trusted Choice Insurance. The amount a vehicle depreciates varies depending on its market demand, make, model, mileage, condition, and even the year it was manufactured.
Despite depreciation, buying a car is a great way to build equity over time, 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 upgrade, or you can continue driving payment-free once the loan is satisfied.
Your vehicle will be worth whatever you can sell it for in the future, and that depends largely on how well you maintain it, its mileage, and market conditions. (Be smart and protect your investment with regular scheduled maintenance by a factory-authorized facility!)
End of Payments
Once you've paid off what you owe on your contract, that's it. Your vehicle is 100% yours with no further obligations. The lending institution will send you a lien release as proof that the vehicle is paid off and all yours. You can continue driving it for years without monthly payments, sell it, trade it in, or pass it down to family members.
LEASING
Who Owns It
You don't own the car when you lease – you're essentially renting it for a predetermined period. You're paying for the use of the vehicle and its depreciation during your lease term, but the finance institution that you leased it through actually owns it. This is usually why you pay less per month in a lease than if you were to buy the same car.
Leasing also protects drivers from unexpected drops in value from unforeseen circumstances. For example, if the vehicle you lease depreciates significantly due to a recall, model redesign, or market changes, this won't affect you financially the way it would if you had purchased the vehicle.
Upfront Costs
Leases typically require lower upfront costs compared to purchasing. You usually only have to pay the first month's payment, a refundable security deposit (often equivalent to one month's payment), an acquisition fee, documentation fees, and applicable taxes. Some lease deals even waive the security deposit. However, as with a purchase, if you want to lower your monthly payments further, you can always pay more upfront as a capitalized cost reduction.
Future Value
In most leases, you don't end up owning the vehicle at the end of the term. Therefore, you won't be responsible for selling it or dealing with its depreciated value – that's the financial institution's responsibility. However, you may have mileage restrictions (typically between 10,000 and 15,000 miles per year) and wear and tear guidelines that, if you exceed them, could result in additional charges when you return the vehicle.
Most lease terms range between two and four years, which may be attractive to drivers who like to drive a newer car with the latest technology and safety features every few years. Leasing could also allow you to drive a more expensive vehicle for less money monthly, especially if your budget would only allow you to purchase a less expensive model.
End of Payments
Most people return the vehicle at the end of the lease term and either lease a new vehicle or explore other options. However, many leases offer a purchase option that allows you to buy the vehicle at a predetermined residual value during or at the end of your lease. Others choose to trade it in for a new lease before their current lease expires. Just ask us about these different options before signing any paperwork and we'll make sure that you have your lease structured the way that best fits your needs.
Best Cars to Lease
The best cars to lease are those with strong residual values – meaning they retain their worth better over time. Since they depreciate at a slower rate, your monthly payments will be lower because you're paying for less depreciation. Luxury vehicles, certain SUVs, and models with strong brand reputation typically have better lease terms. Review industry lease ratings and residual value guides to see which cars retain their value best.
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. Consider buying if you drive more than 15,000 miles per year, want to build equity, prefer no restrictions on modifications, or plan to keep the vehicle for many years. Leasing might be better if you like driving newer vehicles with latest features, want lower monthly payments, prefer warranty coverage throughout your ownership, or like the flexibility to change vehicles every few years.
If you're on the fence over buying or leasing, talk to our experienced finance team to discuss your specific situation. They'll review your budget, driving habits, and preferences to help you find a payment structure that makes the most financial sense for your unique circumstances.
The finance center at McGrath Acura of Morton Grove offers a variety of competitive leasing and financing options for the new Acura and quality pre-owned vehicles in our inventory. Our finance specialists work with multiple lenders to secure the best rates and terms available. If you're ready to lease or buy your next vehicle, contact us online or visit our showroom to explore your options.