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In today’s blog, we are going to speak about a highly debated topic: Should you lease or buy your next car?
Whether your trimming expenses, accumulating wealth, or preparing for retirement, this decision can go beyond just monthly payments.
It can affect not only the size of your nest egg but also how long that nest egg lasts. While everyone’s situation is different, we want to discuss some of the pros and cons of leasing or buying a vehicle, especially as you near retirement.
Now think about this: If you’ve gone through the experience of purchasing or leasing a car, you may have been shocked by the actual costs surrounding the transaction. And in some cases, the real costs of leasing only become clear after the paperwork is signed.
Lease agreements can be filled with terms and conditions that can quietly add up, especially for folks who watch every dollar they have.
One of the most common and overlooked expenses can be mileage limits and wear-and-tear charges.
You might find yourself excited at the thought of a new vehicle and completely overlook the potential penalties associated with going over your allotted mileage which can range from 10 to 50 cents per mile.
On the flip side, unused miles don’t get you any money back, so it can be easy to underestimate your needs and get caught off guard in the heat of the moment.
Potentially more shocking is the thought of wear-and-tear penalties as another source of surprise costs.
When you return your leased vehicle, the dealer will inspect it for anything beyond “normal” use. This can include scratches, dents, stained seats, or even worn tires. Things that seem like minor issues can end up costings hundreds, if not thousands of dollars, to fix.
You might also find that your dealer charges you with a disposition fee at lease-end—often a few hundred dollars just for cleaning and preparing the car for resale.
Another important factor is ownership—or rather, the lack of it. Leasing means you’re renting your car for a set period, usually two to four years. At the end of each term, you return the car and start over with a new lease, having built no equity along the way.
Lease payments take into account the car’s depreciation, which is the amount it loses in value during your lease in addition to finance charges and the dealer’s profit.
New cars tend to depreciate fastest in the first few years, so if you keep leasing new models, you could end up paying for the sharpest drop in value.
And while you may be aware of all those caveats, something we see which is not consistently taken into account is the fact that flexibility can also be limited. If your financial situation changes or you suddenly need a different car, getting out of a lease early can be extremely expensive. Early termination fees can run into the thousands, sometimes equaling the entire remaining balance of the lease.
You might be reading this thinking that’ll never happen to you, but the truth is, this lack of flexibility can be a real problem if you face unexpected expenses, such as medical bills or changes in lifestyle.
And while that picture may seem less than ideal, there are other factors when it comes to leasing that can feel a bit more optimistic.
In certain situations, leasing can offer a hassle-free way to drive a newer car with modern safety features and manageable monthly payments.
The appeal is clear: you get access to late-model vehicles without a large upfront investment, and the process can feel more streamlined compared to buying.
This sense of convenience can be especially attractive when you want to avoid the headaches of major repairs or the commitment of owning a car long-term.
Maybe your lifestyle doesn’t require a significant amount of travel and the potential benefits of leasing a brand new vehicle make sense for you.
This brings up our next question: If leasing chips away at your savings and you’re not as thrilled with the potential benefits, does buying a car, despite what could be higher upfront costs, make more sense?
Owning a car outright can come with some form of financial advantages.
When you buy a car, every payment you make, if you’re financing, goes toward building equity.
This means that once your loan is paid off, you actually own a tangible asset.
That equity isn’t just a number on paper, it’s something you may be able to tap into later, whether you trade your car in for a newer model, sell it for cash, or simply keep driving payment-free for years.
You won’t have the mileage caps to worry about like you do when leasing, so a lifestyle which requires regular travel, may not be as stressful.
And it’s understandable to hesitate at the higher upfront costs of buying.
The thought of potentially having to face larger down payments or slightly higher monthly payments can feel daunting, especially if you’re carefully managing your income.
But the fact is, when you’re done with those payments, you now have an asset you can use and this newfound payment-free period can potentially last for several years and may provide real financial breathing room.
According to Consumer Reports, this is one of the most significant advantages of ownership—your car becomes an asset, not a recurring expense even if cars tend to depreciate over time.
As always, we need to consider potential trade-offs here.
Buying a car means you might take on increased risk as far as repair bills and as the vehicle ages, you may need to budget for larger maintenance items. In addition, you may not have the newest technology or the smoothest ride as you’re holding onto the same vehicle as opposed to obtaining the newest version like you would through a lease.
Of course, the right choice isn’t always obvious and your driving habits, financial situation, and personal preferences can all play a role.
That is why we suggest taking the time to consider what matters most to you before making a decision.
Here’s a framework that can help you work through this decision.
First, start with a clear-eyed look at your needs and priorities.
This isn’t just about numbers but rather it’s about how you want your life to feel and function.
Next, what are your driving habits, how many miles do you typically drive each year, do you travel mostly local or are you making frequent extended trips?
If your mileage is on the lower end, then maybe it makes sense for you to lease.
After you answer these questions, ask yourself, what your financial picture looks like as far as your budget, income, and expenses.
You can take this a step further and try to compare the cost of leasing a new vehicle versus buying a new vehicle versus buying a used or certified pre-owned vehicle.
Finally, take a minute to reflect on your longer-term plans.
Something that may stand out as you work through this process is remembering that leasing has the potential to introduce low-level stress about staying within mileage limits or returning the car in perfect condition.
For some people, these worries are minor; and for others, they can become a regular source of anxiety, especially if unexpected expenses arise.
Owning a car can sometimes bring kind of reassurance where you know the vehicle is yours, with no looming deadlines or penalties, and you may have the flexibility to adjust if your needs change.
This sense of control can free up mental space for what matters most, whether that’s focusing on your health, planning trips, or simply enjoying day-to-day life.
The Final Word:
To make an informed choice, consider gathering all the facts and running the numbers for your specific situation.
Building a budget that includes all the real costs— the monthly payments, insurance, maintenance, potential lease fees, and resale value.
And if you’re still unsure, consider speaking with one of your trusted advisors, or building out different scenarios. Sometimes, the answer is not purely financial but also about which option aligns best with your goals and values.
Disclaimer:
Rockline Wealth Management (RWM) is a registered investment adviser located in Islip Terrace, NY. RWM is registered with the U.S. Securities and Exchange Commission. Registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission.
Rockline Wealth Management does not offer tax or legal services. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation.
All information presented is believed to be factual at the date of publication. This blog should not be viewed as advice for any individual and is intended for general informational purposes only.
All investment strategies have the potential for profit or loss. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client's investment portfolio.
Asset allocation and diversification do not ensure or guarantee better performance and cannot eliminate the risk of investment losses. The opinions expressed and material provided are for general information and should not be considered a solicitation of financial advice or for the purchase or sale of any security.
Real-life and fictional examples given in this blog should not be viewed as guaranteed outcomes when investing. Past performance is not indicative of future results and every individual’s investment circumstances are different. Individuals should consult their financial professional before implementing their investment plan.
Certain information contained herein constitutes “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “project,” “estimate,” “intend,” “continue,” or “believe,” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events, results or actual performance may differ materially from those reflected or contemplated in such forward-looking statements. Nothing contained herein may be relied upon as a guarantee, promise, assurance or a representation as to the future.