You have many decisions to make when purchasing a new car, one of which being whether to buy or lease a vehicle. There’s no one-size-fits-all answer, as both buying and leasing have pros and cons. Weighing the benefits and disadvantages for each option will help you decide what’s right for you. In this article, we’ll walk you through the process of both buying and leasing a car and if each option affects your auto insurance.
How Car Leases Work
You are considered the owner when you buy a car, regardless of whether or not you purchased it with a loan. Leasing, on the other hand, is essentially long-term renting of an automobile. The leasing company or dealership is still considered the owner of the car, while you agree to use the vehicle for a certain amount of time and under specific terms. At the end of your lease, you’ll have the option to either buy the car at a discount or return it to the leasing company.
The financial aspect of leasing differs from buying, as well. With leasing, you typically make a monthly payment for a fixed period of time. Unlike an auto loan, there is no expectation for you to pay off the full value of the car over the period of time that you lease it. There may also be additional costs based on how many miles you drive with a leasing agreement.
It may seem like a simple arrangement, but leasing agreements and finances can be complicated. You’ll have to evaluate the pros and cons to decide if leasing is right for you. When deciding between buying or leasing your next car, keep these factors in mind.
Pros of Leasing a Car
Leasing isn’t for everyone, but it does have advantages. Many people prefer the convenience and reduced hassle of driving a leased car. Read on to learn more about the benefits of leasing a vehicle.
- Potential lower monthly payments: One of the main benefits of leasing is that you’ll often make a lower monthly payment compared to a monthly payment toward a car loan.
- No worry about depreciation: As soon as you drive off the lot in a new car, it takes a dive in value. With a lease, you don’t have to worry about the loss of value due to regular wear and tear.
- Get a new car more frequently: If you want to switch up your car every two or three years, a lease makes that easy. Instead of owning a car that depreciates and selling it for a significant loss a few years after buying, a lease makes it easy to trade in for something new.
- Maintenance may be included: Because the leasing company technically owns the car, it will sometimes cover some or all of the car’s maintenance.
Cons of Leasing a Car
While there are benefits to leasing a car, there are also disadvantages. Depending on your personal and financial preferences, leasing may not be the right choice for you. Here are some cons to keep in mind when deciding whether to buy or lease.
- Paying interest: A car loan typically charges an interest rate based on your credit and current market conditions. While you might not see this directly with a lease, you’ll instead see a “money factor,” which is the interest rate you pay over the period you lease the car.
- You don’t own the car: While paying a loan, you still possess some level of ownership of your car alongside the financial institution, and at the end of the loan, you officially own it. At the end of a lease, however, you will have spent a good amount of money and don’t have anything to show for it other than the option to buy the car at a discount.
- Mileage and wear charges: When you own a car, you can drive it as much and as far as you want with no major repercussions. When your lease ends, however, you may have to pay for excess mileage or wear beyond what the leasing agreement allows.
What Leasing Means for Car Insurance
Now that you have more insight into the difference between buying and leasing, it’s time to consider another important aspect of car ownership: auto insurance. You may be wondering if buying or leasing a car gets you better rates on your auto insurance. However, whether you buy or lease typically won’t impact your premiums.
Your leasing company may require a certain auto insurance minimum while you have the car. Similarly, you may have to have a certain coverage amount in order to get approved for a loan when buying a car. Nevertheless, there is typically no significant premium rate difference between buying and leasing when it comes to your car insurance.
You can still easily save money on car insurance by bundling. Bundling—also known as a multi-policy or companion discount—can often save you money by going through the same carrier for two policies, most commonly home and auto insurance. While the process of comparing opportunities for discounts can be time consuming, SelectQuote can help by shopping some of the industry’s most trusted carriers for auto and home insurance on your behalf.
So, should you lease your next car?
Overall, the decision to buy or lease your next car comes down to your personal preferences and priorities. If you’re mostly motivated by cost and financial investment, buying is typically better than leasing, because once your loan is paid off you can sell the car or continue to drive it without monthly payments. However, if you prefer to switch up your vehicle without the complicated process of actually purchasing a new car every few years, then leasing may be the right choice for you.
Whether you buy or lease, you can be assured that your car insurance costs will remain similar either way. Navigating all the options and fine print can be overwhelming, though, often bringing up more questions than answers. Working with SelectQuote can help simplify the process, as we do the shopping and quote comparison for you. We work for you, not a specific carrier, so you’ll have peace of mind knowing we’ll represent your best interests throughout the process.
Let SelectQuote Help Answer Your Questions About Auto Insurance Coverage for Your Leased Car.
Updating your auto insurance is an important step in purchasing a new car, regardless of whether you’re buying or leasing. Let SelectQuote help you find the right auto insurance coverage for you. We have over 35 years of industry experience and knowledge, and can quickly and easily navigate the insurance shopping process on your behalf to find you a variety of quotes from trusted carriers.