New Update 10/17/2020:

Click here to view a message from our President/CEO, Dion L. Williams.  Starting October 19, 2020, our lobbies will re-open for our member-owners!  Visit our Covid-19 Update page to view more information concerning PACU's re-opening.  For the protection of our members and staff, please remember to wear your mask.

Should You Lease or Buy Your Next Car?

So you like driving new cars. Who doesn’t? They look great, have the latest technology and, ooh, that new car smell. If only there were a way to get a new car every few years. But wait, there is! If you choose to lease a car, rather than buy a car, you will enjoy these perks and more. However, before you jump on that car lease offer you saw on TV, it’s important to understand the pros and cons of leasing versus buying a car. The truth is, leasing is not nearly as simple as paying a few hundred bucks a month to “rent” a new car for a couple of years. In the end, you may decide that the coming to Piedmont Advantage Credit Union and applying for an auto loan is the best financial move for you. Let’s explore some common questions people have about leasing versus buying a car.

What are the advantages of leasing?

Leasing has become increasingly popular in the U.S. In fact, in 2016, one in three new vehicles were under a lease. Many people choose to lease a car because they get a nicer car then they typically can afford to buy, and any mechanical problems they encounter during the lease period likely will be covered by the manufacturer’s warranty.

Advertisements make leasing appear cheaper than buying. Is that true?

The initial costs of leasing a car tend to be lower. Some dealers in North Carolina collect only a security deposit and the first month’s lease payment when the deal is signed. However, other dealers require several thousand dollars in down payments. It’s important to read the fine print in all those dealer promotions so that you can fully understand what your costs will be.

Aren’t monthly payments lower for leased cars?

Generally, the monthly payments for leasing a car are lower than they would be with an auto loan. How can dealers afford to do this? Simple. When your lease is up, the dealer gets the car back because they own it, and they can lease it again or sell it.

What’s the biggest disadvantage of leasing?

While leasing can be appealing, it’s not always the smartest financial investment. At the end of the lease period, the lessee returns the car to the dealer and has nothing tangible to show for the years of lease payments. In contrast, if you buy a vehicle and pay it off through a car loan, the title is transferred to you once the car after is paid off. Additionally, you will likely be able to drive the car for many more years without having monthly payments.

Most people hate haggling over car prices. Doesn’t leasing avoid this unpleasantness?

Leasing terms are based on a vehicle’s value, so if you want a low lease price, you still need to haggle with a dealer over the vehicle price. Also, when you buy a car you have to be aware of hidden dealer fees. The same goes for leasing. Be sure to ask about “acquisition fees” and “disposition fees” so that you fully understand what you are getting into.

What else can drive up leasing costs?

Most agreements put strict limits on the miles driven per year – often 10,000 or 12,000 annually. If you go beyond these miles, you’ll be charged up to 25 cents a mile. Also, any dents, pet stains and other upholstery marks on your leased car may come back to haunt you. The dealer will deduct repair costs from the security deposit you put down when you signed the lease.

Are any other payments owed at the end of a lease?

When the least ends, there are often other payments that may be owed to the dealer. When researching car leases, it’s important to understand the concept of “residual value.” Put simply, when a consumer drives a car for several years, it loses some of its original value. The remaining value at the end of the lease is the car’s residual value. The dealer makes a profit by collecting more money from the consumer than the leased vehicle loses in value. One way dealers try to ensure residual value is by requiring a lump sum payment at the end of the lease. So, be sure to check the terms of any lease you are considering.

Since there’s no bank loan involved in paying for a leased car, do credit scores really matter?

Credit scores still matter when leasing a car. Just as it might be a challenge for someone to get a car loan with bad credit, a dealer might turn away a similar person looking to lease a car. Or the dealer might charge higher fees on the lease. However, some dealerships have lease-to-own-car programs for consumers with financial challenges. The initial lease has no down- payment and modest monthly payments. If the consumer makes those payments on time for a certain period – usually about two years – the transaction converts to a sale. But dealers often have a zero-tolerance rule, sometimes voiding leases after the first missed payment. It’s important to note that many financial institutions, including Piedmont Advantage, have similar loan programs for first-time car buyers or those with financial challenges.

Can other consumers choose to buy their cars after the initial leases expire?

When a lease expires, you can certainly choose to buy the car rather than return it to the dealer. Provisions for buying the car at the conclusion of the lease are usually included in the initial lease agreement. However, experts say it’s generally more expensive to buy the leased vehicle than a similar used vehicle.

How can I compare the costs of leasing vs. buying?

Before you make the decision, check out a lease versus buy car loan calculator online.

Despite what TV ads or a local car dealership might tell you, there’s nothing simple about leasing a vehicle. After evaluating your options, if you determine that buying a car is a smarter move for you, Piedmont Advantage can give you some straight-forward information on how to get a car loan. If you live, work, worship, or attend school in North Carolina Counties, contact us to get started. We always make sure to put our members first.

Piedmont Advantage Credit Union in North Carolina offers valuable banking solutions including checking accountssavings accountsmortgagesauto loansCDsIRAs and more. Bank online, with our mobile app, or visit one of our conveniently located branches in Winston-SalemEdenMooresvilleCharlotteGreensboroWilmington, Kenansville and Fayetteville, NC.

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