Leasing vs. Buying a Car

Do you like driving a new car every two years? Or are you the kind of person who drives their car until the tires fall off? Regardless of how you prefer to get from point A to point B, you’ll get there smarter after this episode on leasing versus buying a car.

Join SAFE Cents host Mark, as he walks you through the pros and cons of car ownership compared to essentially renting a car.

Car Loans and Leases: a Video Summary

Let’s say you decide you’re ready to drive something different. How would you do that?

Well, you could just find a car. Or, you could build a car. Technically, you could steal a car. That one’s probably still against the law, though. 

Aside from that, you basically have two options. Leasing a car or buying one. Which makes the most sense for you?

Let’s let them duke it out! Before we can declare a winner, we have to ask some personal questions. 

Personal question number-one: What’s your credit score? 

Bottom line: You can have less than stellar credit and still buy a car. But you need excellent credit to lease one. If you don’t know your credit score, we’ve done a couple of videos on that topic. Check ‘em out. 

Number-two: how much money you got? Leases are short-term – typically two to three years – and the payments may be lower than if you were to buy and pay off a car in that timeframe.

When you buy a car, terms can go out a lot longer to keep payments affordable. Then of course the monthly payments stop when the term ends because you’ll own it. 

With leasing, you’re basically paying for the privilege of borrowing someone else’s car, so you’ll always have a monthly payment — at least until the zombie apocalypse. 

Three: What are your car habits?

If you’re a neat freak who doesn’t drive a lot, leasing could be your thing. But if your most frequent passengers are half-empty water bottles and taco wrappers on all your cross-country road trips, you’re gonna want to buy. Most car leases come with mileage limits and a ‘slob tax’ if you bring it back messy. 

In the bout between leasing versus buying, neither approach wins by a knockout. But buying probably edges out leasing in the judges scores — mainly because about 80 percent of Americans choose to buy their cars. So, which will you choose? 

For more ways to keep your money safe and healthy, visit our Learning Center.

One Simple Quiz to Determine Your Future Car!

Ok, this quiz may not be able to determine your future car precisely, but it can help you narrow in on what you need, whether you should buy or lease, and how you should finance it.

Personal Questions

These are the uncomfortable questions that you may not want to think about too closely, but they’re crucial in determining your future car. Without knowing this information you may wind up spending too much money in interest.

1. What's your credit score?

Your credit score will impact what you can afford and even whether you’ll get approved for a car loan or a lease. You shouldn’t be discouraged if you have a lower score, but you’ll want to know what to expect before you head into the credit union or dealership.

Credit scores as we know them today were introduced in 1989, and lenders use them to get a sense of how likely you are to pay back the money they lend you. Credit reporting bureaus can help lenders figure this out by looking at how you’ve used credit in the past and reporting on 5 key factors:

• payment history: do you make your payments on time?
• debt utilization ratio: how much do you currently owe, and how much are you approved to borrow?
• credit history: how long is your track record of having credit?
• new credit requests: are you taking on too much debt all at once?
• credit mix: do you have a lot of high-dollar loans, or a lot of credit cards?

If you’re not sure what your credit score is, your first step should be checking it. SAFE offers free access to your FICO® credit score directly in your member account.

A car loan can raise your credit score pretty quickly. It’ll give you a solid history of on-time payments and will add an installment loan to your credit mix (though whether that’s a good thing depends on what type of credit you need more of for your mix).

The biggest potential problem with using a car loan to improve your credit score is your utilization ratio. When you first take out your car loan, your lender will be reporting that you are using 100% of that amount, and it could take a few years to get down to a 30% loan usage. The other problem is that when you inevitably pay off the car and close that loan, the lender stops reporting that low utilization, and your credit will probably sink a few points. But! You’ll still have those years of on-time payments which account for 35% of your credit score.

2. How much money do you want to put towards your car upfront?

Like any installment loan, if you have a good chunk of change to put down for a purchase, you’re going to pay less in the long run. You won’t need to borrow as much, meaning you won’t get charged interest on as much. If you have little to no money to put down, a lease may make more sense! You’re essentially renting a car long-term so the upfront costs are lower and your monthly costs are going to be less. Of course, you’re also not gaining any equity in the car, so it’s really up to you whether that’s the right call for you.

3. What can you afford over the life of the car?

Don’t forget – if you’re purchasing a car, the price tag is only a portion of what you’re paying each month. You’ll want to use our free auto loan calculator to estimate your payment based on your rate, loan term, and total loan amount.

The big problem here is finding someplace that publishes car loan rates for new and used cars. We make ours easy to find, but we also have great rates so they may be a bit misleading if you’re using someone else for your loan.

Before you lock yourself in, make sure you’re ok with this amount! The only way to change it after you’ve purchased the car is to refinance.

You should also think about how much maintenance is going to cost. Luxury cars may not break as often as standard autos, but they typically cost more to repair when they do break. Do some research to figure out the average repair bill and frequency for whatever car you’re eyeing. 

Less Personal Questions

Now to help you home in on getting a car that will suit your needs – both in type and in acquisition model.

4. How are you using the vehicle?

If you plan on driving this car for a long commute every day, it needs to be comfortable. If you’re carrying around an entire basketball team, it needs to have space. Each use of your car leads to its own considerations. Are you tailgating? Do you want to help people move? Are you giving rides to important people, like clients or mothers-in-law? Or do you just want something sporty to drive around on the weekends?

5. What are your car habits?

This is a huge factor when deciding whether to lease or buy. Are you the kind of person who lives out of their car? Do you have kids? If the answer to both of these is no, leasing can still work! But if you’re unable to keep your car practically pristine, you don’t want to lease. Most leases come with a ‘slob tax’ if you bring it back too messy.

6. How much do you drive?

This question is two-fold.

First, if you’re driving a lot, you need to find a car that won’t break down after 10,000 miles and doesn’t guzzle gas. That’s true regardless of whether you’re leasing or buying.

Second, car leases often have mileage limits. If you go over the limit, you’re hit with a fee. So if you’re looking for a daily driver for a long commute, or looking to take a couple of cross-country road trips, leasing could break the bank.

Our Questions for You

Now that we’ve asked you to do some introspection, it’s time to make sure you’re aware of all of your purchasing options.

7. Do you know how credit union auto loans work?

It often feels simpler to walk into a dealership empty-handed and drive out with a loan and a new car. But getting a low interest rate auto loan from SAFE is pretty simple as well, and you can walk in knowing your budget and your rate without worrying about being blindsided.

Once you become a member of SAFE, applying is easy and we show you your estimated payment on Step 1 – not after you’ve already had a lengthy conversation.

8. Do you know how to get approved for a car loan?

In order to get approved for a loan with SAFE, you’ll need to provide standard personal information:

• Name
• Date of birth
• Social Security Number
• Citizenship status
• Contact information
• Physical address
• Identification
• Financial information (specifically gross monthly income and monthly expenses)

With this information, SAFE can calculate your rates and your auto loan amount before setting you free on the dealerships.

There are many benefits that make SAFE the best credit union for auto loans. When you finance your auto loan with SAFE, you may be eligible for our Skip Pay Program allowing the option to defer up to two payments annually on qualifying loans.

Give us a call, or apply online today.

We’ll admit: this quiz is less satisfying than one that asks you to look at a few pictures before telling you that your perfect car is a metallic mint green 1964 Buick Skylark (or a 1963 Pontiac Tempest), but hopefully it still helped you consider your options and make a decision on your next car. Whenever you’re ready, we’ll be here to help.