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The time has come to get a new ride. Although you know that there are differences between leasing and financing a car, you might not know which option’s right for you. So, before you choose between leasing or buying a Jeep Wrangler, you’d better hit the books (this article) and figure out what’s what.
Ah. Equity. You’ve heard this term thrown around a lot, but what exactly does it mean?
If you opt to buy or finance a vehicle, all your upfront costs and monthly payments contribute to your built-up equity. This is essentially like a financial safety net or cushion between your car loan balance and its resale or Blue Book/Black Book value. Over time, and with each on-time auto loan payment, that cushion grows.
To calculate your equity, start by subtracting your loan balance from the vehicle’s resale or cash value. With any luck, you’ll end up with positive vehicle equity (your car is worth more than you owe). For example, if your loan balance is $5,000 and your car is currently worth $12,000, you have about $7,000 in equity to leverage.
What can you do with your vehicle equity?
However, you could also be upside down or underwater on your loan (your car is worth less than you owe). If your vehicle depreciated in value too quickly, your loan balance may be higher than the vehicle’s current market value. There are numerous reasons why people get upside down on car loans:
In these situations, refinancing an upside-down car loan is an option, though consultations with auto finance advisors is recommended.
When you own or finance a vehicle, you can drive as many or as few miles as you want. Drive to Fairbanks, Alaska and back to Kansas City, just for the heck of it – no one’s going to stop you. This isn’t the case when you lease a car, as you’ll be restricted to a certain number of miles (usually 10,000 or 12,000/year).
If you like to put your own personal stamp on things, car ownership is for you. Even if you’re financing, your car can be modified as you like. Swap out the stereo, slap on a spoiler, install spinning rims – no need to worry about any lease-end charges or restrictions. You do you, you.
Surprise fees are so blegh. When leasing, you’ll have to pay several turn-in fees, such as wear and tear charges, once the lease terms end. That’s not the case when you finance a car. Once your monthly loan payments are finished, you own the car, free and clear.
The average auto loan term is 5 years. After 5 years, you’ll own your vehicle without having to pay every month. And because newer vehicles offer more long-term dependability—the average vehicle on the road is currently 10-12 years old—you’ll have many more years of no-payment car ownership.
If you finance a car in January and decide you don’t want it 12 months later, you don’t have to keep it! You can sell it privately, trade it in to a dealership or sell it to a used car lot near you. While it’s certainly possible or even likely that you’ll lose money in this specific scenario, it’s not a guarantee—it all depends on market availability!
Financing cars usually makes better long-term financial sense, though many people can’t stomach the thought of large down payments and higher per-month charges. Unlike leasing, financing a new or used car will require a hefty upfront payment (usually 20% of the vehicle’s sale price), and you’ll also be on the hook for high monthly payments over the entire loan (usually 5 years).
New cars can lose about 20% of their value in the first year and roughly 50% after three years. So, it’s like a constant battle against depreciation’s pull when you purchase a new vehicle. Depreciation on used vehicles is much easier to swallow, but it’s still something to consider before forking over money.
If you’re the type who procrastinates or dislikes going to the mechanic, you may want to look at leasing. Owning a car will require you to keep up with regular maintenance and pay for necessary repairs as issues arise—and they will—with your car. Vehicles don’t last forever; parts oxidize and rust, belts fray and crack, electrical wiring corrodes, and you’ll need to get those things fixed in order to make your investment worthwhile.
Every new car comes with a warranty. That warranty does expire, and once that happens, any non-recall issues you experience will be an out-of-pocket expense.
As your vehicle gets older, concerns about reliability inevitably grow. Brake pads and rotors must be replaced. Tires need to be swapped out. Belts start slipping and pulleys stop working. That means more trips to your auto service center for routine maintenance and impromptu repairs.
To protect your investment, it recommended that you acquire GAP insurance after financing your vehicle. If your car is totaled or stolen and your insurance payout doesn’t cover what you owe on the loan, GAP insurance steps in.
On a more fixed or limited budget? A car lease may be better for you financially. Although financing a car represents a better long-term investment, a leased car typically comes with a significantly lower monthly payment. In fact, as of 2023, the average monthly auto lease payment is approximately 20% less than the average auto finance payment.
Click here to use our monthly payment calculator.
When it comes to down payments (or cap cost reductions), leasing a car is usually cheaper than buying. The upfront price to lease a car is about 20% less than a new car loan. Of course, because you’re essentially renting, you’ll always have a monthly payment when leasing a vehicle. You can choose to finance or lease with no money down, though that will push your monthly payments higher, oftentimes out of reach for the typical American budget.
Every few years, you can turn in your leased vehicle and choose to buy or lease a newer one. That means getting the latest automotive gizmos and gadgets, as well as access to new electric vehicles with higher driving ranges.
No one likes dealing with car maintenance. Oil changes, tire rotations and wheel alignments are all essential, but when you throw in tasks like replacing batteries, changing tires and simply diagnosing electrical issues, that’s when “annoying” turns into “overwhelming.” Because your new car lease is covered by an extensive warranty, you really shouldn’t have to worry about age-related maintenance tasks.
If you own and run a company, car leasing could help you save some money come tax time. View our commercial vehicles for sale to get started building your company fleet. (It’s best to speak with a tax advisor about deducting your lease payments as a business expense.)
When your lease expires, you’ve got a few choices:
The big perk to leasing a car is not having to worry about the car’s resale value—that’s the leasing company’s responsibility. When you signed your lease, you basically consented to paying for the vehicle’s pre-determined depreciation cost. If it turns out that vehicle’s depreciation was 80% instead of 50%, you did well financially. On the other hand, if the vehicle depreciated just 20% instead of 50%, you may want to purchase the car at its residual value, which was noted on your auto lease contract. In any event, you’ve saved yourself either money or a headache.
Leasing at a car dealership near you oftentimes comes with perks or freebies. Many manufacturers offer a form of GAP insurance with their leases, and dealerships have been known to give their customers loaner cars, maintenance packages, roadside assistance plans and more for little to no money.
Mileage is one of the biggest disadvantages to leasing. When you lease, you’re consenting to drive fewer than a preset number of miles, usually between 10,000 and 12,000. If you go over that mileage come turn-in time, you’ll be charged a very hefty sum that ranges from $0.05 to even $0.25 per mile. We repeat: That’s up to 25 cents per mile over.
If you know you need more runway with your leased vehicle, you can pay for extra mileage in advance. This will, of course, cost you extra monthly, but it’s a good option for business owners.
With an auto lease, you can only get new vehicles, not used or certified pre-owned cars.
Unless you were lucky enough to lease a vehicle that barely depreciated in value, you’re probably not getting any equity after a lease buy-out.
If you don’t take great care of your vehicles, leasing might be a bad choice. When the time comes to return your leased car, you’ll want to make sure it’s not dinged, dented and stained to heck. Minor scuffs aren’t likely to cost you anything, but moderate to large cosmetic issues will force you to pay. Worst of all, those fees can be thousands of dollars!
You must return your auto lease in (mostly) the same condition as when it was driven off the lot. That means your tires must be the same or at least match, all floor mats must be in good condition and there are no other visible differences or changes made.
Leasing a vehicle means always having a monthly payment to make. It may not be as high of a payment as a car loan, but it’s a “forever payment” nonetheless.
If you decide you don’t like or can’t afford your leased vehicle, no matter the reason, terminating your contract will be difficult and costly. Unlike a financed car, which you can sell at any point and pay off the loan balance, leased vehicles must be paid for in their entirety. If you do terminate a car lease early, expect to pay all lease-end fees, plus the cost for your dealership to acquire, recondition and resell the vehicle for a profit.
Need to get out of a car lease in Kansas City? Speak with a member of our auto finance department to go over your options.
Now that you know some of the pros and cons of leasing a car vs. buying one, you’re ready to make the decision. Of course, we’re here to help answer questions and get you the best rates on the best vehicle possible! Whether you choose to purchase or lease, pick McCarthy Jeep RAM to handle all the nitty-gritty.
Contact our Lee’s Summit car dealership at (816) 272-8846 to speak with a member of our auto sales or finance team. And be sure to review our other car buying tips!
While great effort is made to ensure the accuracy of the information on this site, errors can occur. Please verify all pricing information with a customer service representative. This is easily done by calling us or visiting us at the dealership.
Customer may not qualify for ALL Rebates shown. Some rebates are stackable and others can and cannot be combined. See Dealer For Complete Details.
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