Q&A: It’s time to get our first car. Should we lease or buy?
QUESTION
We’ve held out as long as we could, but it’s time to get our first car. Big question: should we lease or buy? Any other tips?
ANSWER
I’ve always been a car guy. My affinity comes from growing up in South Florida, where I drooled over the eye candy at every intersection. I drove a Subaru WRX in college with a giant spoiler on the back; a fun vroomy setup for a time when I was only responsible for myself, but that’s not the case anymore. Now, Heather and I have an SUV we lease and a sedan we own.
Should you lease or buy? This question isn’t a novel one but something I get asked all the time. As illustrated by our own choices, it depends. Let me walk you through some pros, cons, and other tips to get the best price once you’ve decided.
Pros of leasing
Leasing allows you to have a short-term relationship with a car. You get to enjoy a car’s best years, complete with all the latest features in the newest models. For those who like driving something new every few years, this is the way to go. Leasing also tends to be easier on your cash flow, because monthly payments are generally lower when you lease compared to when you own. According to Experian data from Q1 2023, the average monthly payment on a new car loan was $725, compared to $586 on a car lease. Also, maintenance is often baked into your monthly lease payment.
Cons of leasing
One of the downsides of leasing, however, is having to limit your mileage. The most common agreement is for 12,000 miles per year, or about 1,000 miles per month. If you're a daily super-commuter or regularly travel long distances, leasing a car might not meet your needs. Going over your annual allotment gets expensive, too. According to Autotrader.com, most car companies charge 15 to 25 cents per mile for overages. That’s $150-$250 for every 1,000 miles you go over. And even though leasing might be easier on your monthly cash flow, it tends to be more expensive in the long term. Think about it: when you’re perpetually leasing, the payments never stop, and you’re not building equity in anything.
Pros of buying
Buying a car is like putting a ring on it – it’s yours, for better or worse, a long-term commitment that could last the car’s lifetime. One primary advantage to ownership is that you hold the title and have the equity in your vehicle. The car belongs to you and not some financial institution, so selling or trading your car in is a lot easier. Ownership also allows you to drive as much as you want without fear of penalties, making it the superior option for frequent commuters. WIth ownership also comes the ability to customize and modify the vehicle. So, for the car enthusiast who likes getting under the hood, buying might be the only option. But perhaps the greatest advantage of owning a car is how it provides the most value over time. Car payments eventually stop with the equity belonging to you.
Cons of buying
On the flip side, owning a car can lead to larger upfront costs compared to leasing. Even with attractive financing options, your down payment and monthly payments will likely exceed that of a lease, mainly because you will own the car at the end of the term. You will also have greater responsibility when it comes to maintaining an owned vehicle. Some dealerships or manufacturers could offer some free or discounted servicing for a limited time but, over the long term, you are responsible for making sure the car is maintained. Failing to keep up with maintenance will erode the long-term value of owning a car, which for most, is the main attraction.
Here’s a few additional questions to ask yourselves:
What fits better into your household budget? Weigh the total cost of leasing versus buying by accounting for: down payments, monthly payments, maintenance, depreciation, and potential mileage penalties. Remember that leasing fits better into tighter budgets while buying creates more long-term value.
Do you like shiny new things? If you’re the type of people who always wants the next best model, leasing might make more sense. But if you’re aiming to maximize value, buying creates equity. You’d also have more opportunities to pursue customizations, trims, and sports packaging.
Do you brush your teeth? I’m kidding, but not really. How well do you maintain things? How comfortable are you handling not only the maintenance but the “what if’s” of car ownership? Would you sleep better at night knowing you’ll probably never see the car’s worst days on the road?
Choosing between leasing and buying isn't a one-size-fits-all deal. Ultimately, it's about fitting a car to your life. Heather and I realized we needed our first car shortly after having our first daughter. We leased, because we had no idea whether we’d be staying in the city or commuting from the suburbs. Really, we had no idea about anything (How big of a trunk WOULD we need for all our baby gear? What if there’s another baby?!). When we ended up in the suburbs on rotating commuter schedules, we could only last so long without a second car - our sedan - which we leased and then bought at the end of the lease, having realized we needed that commuter car to log miles on. That’s our story, but it might not be yours.
Whatever you decide, just remember to negotiate. DYOR (that’s “do your own research”) on different models and additional costs of certain upgrades (i.e., larger wheels, technology packages, and trims). Visit multiple dealerships and have them fight for your business. I had four dealerships competing to lease us the SUV we currently drive. Ask about seasonal promotions and upcoming offers, because it could make sense to wait for the next sales event. Follow my friend Car Dealership Guy on X for up-to-date car industry news. You can also check out my interview with him from last year.
Do you have a love and/or money question for our Q&As? Let us know: themergebook@gmail.com.
OUR PICKS
Doug’s:
Why Millennials are Declaring Themselves Obsolete - The New York Times
How I'm Explaining Current Interest Rates to My Home Buying Clients - Investopedia
The loneliest generation: Inside the Gen Z mental health crisis - Axios
Heather’s:
Why Americans Suddenly Stopped Hanging Out - The Atlantic
Leaving ‘Mr. Mom’ Behind - The New York Times
READER ROLE CALL
Do you have a money question you’d like answered in a future issue of The Joint Account? Don’t be shy!
SOURCE REQUEST: Do you and your partner have wildly different spending habits?! We need you! Email: themergebook@gmail.com.
Are you a brand or business interested in reaching The Joint Account’s audience of 11,500+ subscribers? Email themergebook@gmail.com.
Find us on social: @dougboneparth + @averagejoelle :)
The content shared in The Joint Account does not constitute financial, legal, or any other professional advice. Readers should consult with their respective professionals for specific advice tailored to their situation.
I would never consider leasing a car. I have not had a car payment for more than a decade. Now, it’s true that I’ve had to pay for repairs, but I want the cheapest transportation per mile.