Although some guides instruct potential car owners to lease a new vehicle instead of buying one, there are many reasons not to lease a car, such as long-term affordability, lack of owner equity and higher insurance requirements.
One of the main reasons that people choose to buy a car rather than leasing one is that purchasing a car is often more affordable in the long run. Although purchasing a vehicle will cost more upfront, your monthly payments -- or maintenance costs -- will often be lower than when leasing a vehicle. For example, if you lease a $20,000 vehicle for five years with no down-payment and a 15-percent interest rate, your monthly payments would be roughly $350, plus the cost of any maintenance or major repairs that need to be performed during those five years. If you buy the same $20,000 car with a loan that cost you $5,000 down and 5 percent interest, your monthly payments would cost around $250 in addition to any maintenance costs.
Both AAA and Consumer Reports agree that the average annual cost of operating a vehicle is around $9,100, using a four-door sedan as the ideal example. This price factors in insurance costs, fuel prices and maintenance fees and will be roughly the same whether you lease or own your vehicle. Note that most lease agreements require that you have more expensive insurance policies, such as comprehensive insurance or GAP coverage. Also, your monthly payments on a lease agreement will need to be renewed when the lease expires, meaning that your monthly payments will never truly end as they would if you were to buy the same vehicle. On the contrary, the longer you keep a car that you've purchased after you've finished paying it off, the more savings you'll have realized. Therefore, leasing a vehicle can often be much more expensive in the long run than buying a car.
In addition to a higher monthly payment, an auto lease doesn’t give you any ownership equity. That means that when the lease agreement is over, you’ll have to return the vehicle to the dealership and forfeit any money that you’ve put into it. If you purchase the vehicle, you’ll still own it after you’ve paid it off. Additionally, you’re free to make any changes to the vehicle that you want, such as painting the car or tinting the windows. You're also free to travel as far as you want, whereas a lease agreement may restrict the number of miles you're allowed to put on the car during your lease term.
Since you don’t actually own a leased vehicle, you can’t resell it. However, you may be able to sublet the lease to a third party or trade in the vehicle to the dealership for a discount on a new car, according to LeaseGuide. If you purchase a car, though, you can resell it at any time for the residual value that is left in the vehicle.
Even if the vehicle has depreciated in value, you can still improve the sale value by painting the car, tinting the windows or decorating the interior of the car.
Higher Insurance Requirements
Another reason not to lease a car is the higher insurance requirements that most lease agreements impose on you. While you’ll still need basic insurance coverage either way, purchasing and owning your own vehicle will allow you to forgo the expensive collision and comprehensive coverage that you would otherwise be required to purchase.