Why buying Vs. leasing a car shouldn’t be a question.
By: Anas Bettar
Tags: Money Management, Personal Finance, Buying A Car, Cars, Income

Photo by SCREEN POST

The main purpose of a car is transportation. It is on average the safest and the quickest way to go from point A to point B. It is also a reasonable way to reduce the amount of time wasted and the headaches caused by public transportation. No one likes a 1-hour commute with 2 buses and 3 metro stations, especially when they’re not always reliable.

That’s why buying a car can increase your quality of life. Having a personal vehicle on hand 24/7 helps with your productivity, social life, and professional opportunities. But in 90% of cases, getting a car will increase your monthly expenses. And that’s the number one argument for dealerships to encourage you to lease a car instead of buying it.

Leasing a car

Photo by Cytonn Photography

Leasing a car is simply renting it with an option to buy it for a predetermined amount at the end of the contract. It does, logically, make sense for the monthly payment to be less than loan repayment.

The most important disadvantage of a lease is that you’re not building any equity. All your monthly payments add zero dollars to your net worth if you don’t exercise your buying option. Some would argue that a portion of the payment can reduce your taxes if the car is used for business purposes. But for a majority of people that is not the case.

Another argument is comparing a car lease to an apartment lease. But then again, when you lease an apartment you can get out of your contract theoretically whenever you want if you need to, and apartment contracts are shorter. You can also use it however you like and even have a roommate who pays a portion of the monthly expenses.

Besides, there are a few separate caveats. The contract sets an annual mileage cap limiting the number of miles (around 10,000) that are included in your contract every year. If you exceed that number, your monthly payment increases, and once the overall limit is exceeded you will owe extra cash to the dealer at the end of the contract.

Another limitation is that you have to return the car in pristine condition. Any significant modifications would have to be reversed which may cost money.

Buying a car

Photo by Erik Mclean

On paper, getting a loan is more expensive. You have a down payment, the interest, and the principal to take into account. But a basic financial comparison isn’t right.

Buying a car means that you own the vehicle. Each payment builds up your equity, and by the end of the contract, you own 100% of it. No more payments to worry about nor end-of-lease fees. Leasing gives you two options: to return the car or to pay a lump sum to keep it. Most people resolve to return it and get a newer model, which means more monthly payments.

Also, the absence of a mileage limit opens more opportunities for new income streams. Ridesharing apps, like Uber and Lift, or delivery apps like Postmates and Instacart are perfect for that. You can find dozens of examples, on youtube, of people making $15 to $30 per hour, working less than 10 hours a week. The additional income could easily cover a large portion of the monthly payment. An option that is not possible with a leasing contract.