Buy or lease? 5 questions to ask yourself first

Summer’s in full swing, which means road-trip plans are in their final stages or have already taken hold. If you’re looking to get a car now, but don’t know whether it makes more sense to buy or lease, ask yourself these 5 questions before heading to the dealership.

1. For how long do I want to be driving the same car?

This may be the most critical question you need to answer before deciding on your financing approach. If you want to switch it up every few years to drive the latest model or use the latest car tech, leasing may be a better option. On the other hand, if you’d rather find a car you like and drive it for a long time, a loan may be a better option.

If you lease, you’ll be turning in your car at the end of the term (typically 2-3 years) and can lease or buy another car at that time. However, if you plan to have a car for a longer term, you can spread high up-front costs out over a longer period of time.

2. How important is it for me to personalize my car, to make it my own?

Do you like to add personal touches to your car, like bumper stickers, special tinting, custom speakers, modified interiors and the like? If so, buying may be more suited for you.

With a lease, it’s a different story. Typically, the leasing company wants the car to look as close as possible to the new version when you return it. Making significant changes to a leased car before the term expires could be risky — it might cost you more at the end with additional fees when you return it.

3. How important is it for me to save in the short term versus the long term?

Car loans and car leases usually have different financial structures. When you finance a car purchase, you’ll usually have to come up with a down payment. With leases, you typically don’t.

Also, car loans typically carry higher monthly payments than leases do. That’s because you’re financing the entire value of the car versus the difference in value between the newly leased car and the value of it when you turn it back in. Once you pay back a car loan, your monthly payments will stop — so the longer you drive it, the more you could end up saving on the total cost.

4. Year to year, will I be driving a lot or a little?

Since car leases typically have yearly mileage limits, you’ll want to think about how much you’ll be driving. Exceeding the mileage limits on leases can open you up to hefty fees. When you buy a car, you can drive it as much as you want without having to worry about specific mileage caps. Of course, the more you drive a car that you own, the more wear-and-tear, repairs and other costs you may incur.

5. Will my driving needs change drastically? If so, how?

Early car lease termination can be costly. So if you’re not sure whether you’ll always be needing a car over the next few years, buying a car may be the option for you. If you bought a car and decided you didn’t need it a year later, you could sell it.

On the other hand, if you’re sure you’ll need a car for the entire term of a lease, but aren’t sure about later, a lease may be a preferable option.

Whichever financing option you end up going with, make sure you can afford the payments. It also pays to know where your credit stands before you head to the dealership. That way, you’ll be more confident negotiating for the best rate and terms you can, loan or lease.