Leasing or Buying For Young Drivers: Which is Better?

For students and recent grads, getting their first car is a big step and an expensive one. And few young people today would want to settle for an older used car when embarking on this pricey car-hunting adventure. But unless they have rich parents, they will need a loan to purchase a new (or nearly new) model. Alternatively, members of this young generation could consider leasing a car. The question is, how do they determine which is more financially prudent between buying and leasing their preferred vehicle?

Leasing vs Buying

When you buy a car, you will own it at the end of the loan term, as long as you keep up the payments. Then, if you decide you want to replace the vehicle, you have an asset that you can trade against a new car.

With a lease deal, you might be able to get a better car for the same monthly payments. But at the end of the lease term, you either have to give the car back or⁠—if you can afford it⁠—buy it. You could decide to lease another car, but you still won’t own it.

If your purchased car suffers any significant damage after its warranty expires, you will have to pay for the necessary repairs. On the other hand, most leased vehicles have a warranty which covers you for many faults. You would only have to ensure that the leased car is well-maintained and serviced at the scheduled intervals.

A lease agreement will limit the mileage you can do, usually 10,000 or 12,000 miles per year. This helps the lease company to maintain the car’s resale value. Going over the mileage limit could cost you 25 to 50 cents per mile, which can turn out to be quite costly. If you want the freedom of unlimited mileage, you would be better off buying your car.

Know Your Budget

Whether you are taking out a loan or entering into a lease agreement for your first car, it’s easy to be tempted to go for that muscle car or cool truck. But before deciding on such a big-budget investment, you have to know whether or not you can afford the monthly payments.

If you default on the payments, not only will you lose the car, but your credit score will be negatively affected, making it more difficult for you to secure financing for future endeavors. That’s why being patient and getting a cheaper car now will allow you to make prompt payments and build your credit score.

You Might Need a Co-Signer

To obtain a loan or a lease agreement, you are required to have a good credit history. Most young people will not have had the time to build a credit history. Besides, if you’ve never had any credit before, you will have no credit score, and that makes it just as challenging to obtain a loan as having a bad credit history. Therefore, to lease a car, you might have to get a relative to co-sign the agreement and take responsibility should you fail to make regular and timely payments.

For excellent advice on whether leasing or buying your car is best for you, contact Autoflex, or fill out a quote form.