Setting Your Sights on Buying or Leasing a Car

Both options have their benefits. Learn which is right for you.

To buy or lease? It’s an important question for automobile shoppers.

However, it’s best to answer that question after addressing a couple others: What kind of car person are you? Specifically, how long do you typically hold on to a vehicle? The average auto lease arrangement lasts for 36 months, according to research from TrueCar, which powers the Nationwide Auto Shopping Service. The average purchase loan is 60 months. These dynamics play a big role in helping you deciding what kind of car person you are.

“The ultimate measurement is, How long do you like to keep a vehicle?” says Eric Lyman, a vice president and senior analyst for TrueCar. “If you’ve ‘got to have’ a new one every two or three years, then you should look into leasing. If you prefer to ride it forever—because you like the stability of having one main vehicle indefinitely—then, clearly, you should buy.”

But if you fall in between those extremes, Lyman is happy to lend his perspective on the following leasing versus buying decision-influencing factors:

The financial picture. There used to be a stigma about leasing a car: that only those with high income levels should consider it, as it was often perceived as a luxury choice rather than a practical one. However, this impression is shifting, thanks to increasingly attractive lease deals. True, nearly one of every two luxury cars is leased, TrueCar reports, while only one in five “mainstream” vehicles (like mid-priced sedans, pickups and minivans) is acquired this way. However, annual leasing percentage financing rates are now down to 1.5 percent, while auto loans are at 4 percent. And lease down payments are at $1,500 for a mainstream model and $3,000 for a luxury one. For a purchase loan, the breakdown is $3,000 down for a mainstream product and $7,500 for a luxury product.

“Automakers are making leasing more financially appealing, because it’s a major brand-loyalty tool,” Lyman says. “They benefit by getting customers back in that showroom quickly. When you lease, you have to go back after three years, typically. Once you set foot in the dealership door, it’s an opportunity for the salesmen to win you over with new products.”

The tax burden. With an auto purchase, in many states, you’ll have to pay taxes upfront on the entire sticker price. With a lease, you’ll usually just be taxed on the depreciation that occurs during your agreement term. “That will amount to a savings of 50 percent, in favor of the lease,” Lyman says.

The change factor. Think about any anticipated changes in your living situation. If you’re single with no major housing-expense considerations and expect to stay that way indefinitely, then leasing could work for you. But if a marriage or kids or a decent-sized mortgage payment are on the radar, then you could sleep better at night with a more stable arrangement.

Annual mileage. Before signing any papers, conduct an honest assessment of your annual mileage. If you depend upon your vehicle as your office, you very well could tally in excess of 12,000 miles a year. If you frequently drive to visit loved ones who are hundreds of miles away, you’ll rack up the miles as well. “Generally, with a lease, you’re allowed 12,000 a year,” Lyman says. “If you go over that, you’ll pay a penalty that could cost up to 25 cents a mile.”

If you’re shopping for a new car, or want to refinance the one you have, we can help. Nationwide Bank offers new car and auto refinance loans with low fixed rates and flexible terms, making it easy for you to get the car you want—and keep more cash in your pocket.