In a time when we no longer own music albums or movies and we’re slower to buy homes, it makes sense that a recent survey from Edumunds.com finds that millennials lease more than any other age group. “You don’t need to own a car to enjoy it and get value out of it,” says Kristen Euretig, CFP, founder and CEO of financial planning company Brooklyn Plans. Or it may be today’s economy, in which 36 percent of millennials are struggling with student loan debt, it’s that much harder to save the cash to buy a car, adds financial adviser Hilary Hendershott, CFP, owner and founder of Hilary Hendershott Wealth Management. But is it better for you financially to buy or lease? Like a lot of big money decisions (like taking out a loan for grad school)… it depends. Here’s what the experts have to say.
When It’s Better to Buy a Car
1) You want to save money in the long-term
“Unless you own a car and wreck it without insurance, leasing is always more expensive than buying,” Hendershott says. That’s because while lease payments are typically lower than monthly car loan payments, those loan payments eventually stop…. and then it’s like you’re driving for free (except, of course, the price of gas, insurance, and repairs). But if you lease, after your term is over (typically around three years), you’ve got to sign a new lease and start all over again. So in the long term, if you buy a car and pay it off in three or even five years, but then drive it for many more, you’ll end up spending way less.
2) You drive a ton
A lease locks you into a set time period (often three years) and a number of miles (usually 10,000 to 15,000) you can put on the car. If you break the lease early, you owe penalty charges. And if you go on an unexpected road trip and go over your mileage, and you’ll have to pay extra when your lease ends. The charges for those miles add up fast.
If You Choose to Buy
Euretig and Hendershott recommend buying a used car that’s one to two years old. “When a car rolls off the lot, it loses 15 to 20 percent of its fair market value,” Hendershott explains. Buying a pre-owned car means you’re letting that first owner pay that premium. Then fully insure the car. You don’t want to run the risk of getting hit by an uninsured driver who totals your car and leaves you high and dry with nothing to replace your pile of sheet metal. Once you finish paying off the loan, continue to put a few hundred dollars into a high-yield savings account each month to use for car repairs or your next car.