Buying vs. Leasing A Lincoln in Olathe, KS

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 comes with distinct financial implications that can significantly impact your budget 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. The title will be in your name, giving you complete control over the vehicle.

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 all payments are made, you own the car outright with no further obligations.

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. This financing covers the vehicle's value, plus interest, over a period both parties agree on, typically three to six years. Online lenders and manufacturer financing programs also provide competitive rates and terms.

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. Your debt-to-income ratio and employment history also factor into their decision. 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. Your down payment should range between 10% and 20% of the vehicle's MSRP to secure your car purchase. A larger down payment can also help you secure better interest rates and reduce your loan-to-value ratio.

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. Additional upfront costs include sales tax, registration fees, title fees, and documentation charges that vary by state.

Future Value

New cars depreciate over time, with luxury vehicles and certain brands experiencing steeper depreciation than others. In fact, within the first year of ownership, a vehicle will lose nearly 20% of its value, according to Trusted Choice Insurance. Some vehicles may lose up to 60% of their original value within the first five years.

The amount a vehicle depreciates varies depending on its market value, make, model, and even the year it was manufactured. Factors like fuel efficiency, reliability ratings, and market demand significantly influence resale value. Popular models with strong reputations tend to hold their value better than less desirable vehicles.

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 becomes particularly valuable if you keep the car for many years after paying it off.

Your vehicle will be worth whatever you can sell it for in the future and that depends on how well you maintain it. Regular maintenance, avoiding accidents, and keeping detailed service records all help preserve resale value. Mileage, interior condition, and exterior appearance are key factors potential buyers consider.

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 without monthly payments, which can free up hundreds of dollars in your budget each month. You can also sell the vehicle, trade it in, or pass it down to family members. This ownership period often provides the best value, as you're getting transportation without monthly payments.

LEASING

Who Owns It

You don't own the car when you lease, instead paying for the right to use it for a specified period. You're paying for the use of the vehicle, but the finance institution that you leased it through actually owns it. This arrangement typically results in lower monthly payments since you're only paying for the vehicle's depreciation during your lease term.

This is usually why you pay less per month in a lease than if you were to buy the car. The leasing company assumes the risk of the vehicle's future value and resale responsibilities. You're essentially renting the car for an extended period with specific terms and conditions.

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 these financial losses, not you.

Upfront Costs

Leases often don't require any type of a down payment, making them more accessible to drivers with limited cash. All you usually have to pay is the first month's payment, a security deposit, the acquisition fee, and other fees and taxes. These upfront costs are typically much lower than the down payment required for purchasing.

But, as with a purchase, if you want to lower your monthly payments, you can always pay more upfront. This money is often called a "capitalized cost reduction" and directly reduces your monthly lease payment. Some manufacturers offer special lease deals with minimal upfront costs or even no money down promotions.

Future Value

In most leases, you don't end up owning a vehicle, so you won't build any equity in the asset. Therefore, you won't be responsible for selling it. That's the financial institution's job.

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. Excess mileage charges usually range from 15 to 30 cents per mile over the limit. Excessive wear and tear can include things like stains, scratches, dents larger than a quarter, or mechanical issues beyond normal use.

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 means you might be able to lease a luxury vehicle that would be financially out of reach to purchase.

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. The purchase option price is predetermined in your lease contract and is based on the vehicle's estimated residual value. Others like to trade it in before their lease is over, though this may involve early termination fees.

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. Some lessees choose to lease another vehicle from the same brand to take advantage of loyalty incentives. The transition from one lease to another can often be seamless with proper planning.

Best Cars to Lease

The best cars to lease are those with the best book value after the term of the lease, as they have higher residual values. Since they depreciate less, you pay less in monthly payments. Review the lease ratings to see which cars retain their value.

Luxury vehicles from brands like Lexus, BMW, and Mercedes-Benz often make excellent lease candidates due to their strong residual values. Electric vehicles may also offer attractive lease terms due to federal tax credits that leasing companies can pass through to consumers. Popular mainstream vehicles with proven reliability and demand also tend to lease well.

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. Your decision should be based on factors like how long you plan to keep the vehicle, your annual mileage, and your budget for both monthly payments and upfront costs. Consider whether you prefer having the latest technology and features or if you're comfortable driving an older vehicle.

If you're on the fence over buying or leasing, talk to a car dealership near you to discuss your options. They'll go over each option and help you find a form of payment that makes the most sense for your financial situation. Many dealerships have finance specialists who can run numbers for both scenarios to help you compare total costs.

The finance center at Olathe Lincoln offers a variety of leasing and financing options for the new Lincoln and used vehicles in our inventory. If you're ready to lease or buy your next vehicle, contact us online.