Leasing vs Buying: What Every Consumer Should Know

Federation To Protect
5 min readAug 2, 2016

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Today’s consumers are inundated with information, more so than other other generation in our country’s history. In addition to radio, television and traditional newspapers, it is now normal and expected for people of all ages to receive a constant barrage of information via email, social media and even on their smart phones. Unfortunately, a large part of this information often arrives in the form of a marketing message, skillfully designed to sway consumers in one particular direction or another without providing all the facts. While this type of marketing can help give consumers more choices, it can also contribute to confusion and encourage them to make a decision they may regret later, especially when the decision involves a significant financial investment, such as the costs associated with buying or leasing homes and vehicles.

Home Leases vs Home Purchases: Understanding the Differences

Even though a lot of marketing messages are expended to convince consumers that they must buy a home as soon as possible in order to experience the American dream, it is not always in the best interest of every consumer to do so. Likewise, choosing to rent or lease a home is also not always the right decision or the best use of a consumer’s housing budget.

When Purchasing a Home Makes Sense

With home mortgage interest rates currently hitting record lows, many consumers are feeling the pull to buy a home. Purchasing is an excellent choice, if and only if, consumers are:

  • financially stable enough to fund a significant down payment and earnest money deposit, along with the other costs commonly involved in a home purchase, such as appraisal cost, inspection fees, homeowners insurance premiums, taxes and closing costs
  • planning to live in the home at least five years or longer
  • able to purchase a home that requires no more than approximately one-quarter of the household’s monthly income for the mortgage and other costs associated with ownership
  • able to afford to pay cash for utility deposits, service connections, furnishings, appliances and moving expenses
  • able to comfortably afford and budget for utilities, HOA costs, routine maintenance, repairs, renovations, property taxes and future upgrades

Consumers who decide to purchase without being able to comfortably afford all the costs related to home ownership may soon feel overwhelmed by the prospect of meeting the monthly mortgage payment and keeping the home in good repair. These consumers may soon find themselves facing foreclosure and future credit worthiness issues simply because they made the mistake of purchasing a home before they were financially ready to do so.

When Renting a Home Is the Best Plan

Renting a home is obviously a better choice for consumers who lack the financial stability to purchase a home, as outlined above. However, a home rental also requires some financial resources, including:

  • funds sufficient to cover the initial security deposit, as well as other deposits and fees for pets, cleaning, etc., as well as any nonrefundable deposits the landlord is allowed to charge in your area
  • the first month’s rent
  • moving costs
  • utility deposits and connection fees for services, such as cable, internet service or phones
  • furnishings, appliances and laundry fees, if needed
  • renter’s insurance

In addition to renting a home instead of buying for financial reasons, consumers who plan to relocate soon or those that travel frequently or do not want to be burdened with maintenance and repair costs often prefer to rent a home, instead of purchasing.

Vehicle Leases vs Vehicle Purchases: What to Consider Before Making a Decision

For many consumers, especially those who live in areas not served by public transportation, it is necessary to own or lease a car in order to commute to work and handle other needs for the family. However, even though a vehicle costs much less than a home to both purchase and lease, it is still important that each consumer understand the costs and responsibilities involved in each type of transaction and then use that information to make the best choice for their individual situation.

What Costs Are Involved in Leasing a Car?

A common advantage for leasing often mentioned by consumers is that leasing allows them to consistently drive a newer vehicle. However, this benefit actually comes with a hefty cost because the leased vehicle is given back at the end of the lease or purchased for market value at that time. This means that most consumers who opt to lease will likely end up continuing to lease again and again, making that lease payment a permanent part of their lives.

In addition to the monthly lease payment, consumers who lease a vehicle also must pay:

  • a significant down payment
  • acquisition, disposition and document fees
  • sales tax
  • registration, license, tag and title fees
  • property taxes
  • dealer add-on costs

Vehicle lease agreements typically specify a mileage limit for the period of the lease. Consumers who exceed this mileage amount during the lease are charged a fee for each mile driven over the limit. In most cases, leasing a vehicle is usually more expensive than purchasing one, except in cases where the vehicle will only be needed for a short time.

Leasing costs can vary from state to state, so it is very important for consumers who are considering a lease to explore vehicle leasing laws in their area, prior to signing any lease agreement.

What Costs Are Involved When Purchasing a Car?

Purchasing a car is usually less expensive than leasing, especially when consumers consider that they will actually own the vehicle at the end of the car loan. However, purchasing a vehicle still includes costs that consumers must be aware of and prepare for, such as:

  • a down payment, finance and interest costs (if taking out a vehicle loan)
  • registration, license and tag fees
  • insurance coverage
  • sales tax, if applicable

Unlike leasing a new or newer vehicle, consumers who choose to purchase can control the total cost by being willing to consider a used car, instead of a new one or saving up to pay cash for either a used or new vehicle, instead of using taking out a vehicle loan.*

*This article provides broad and general guidelines and does not constitute professional financial or legal advice. You should not use this article as a substitute for your own judgment, and you should consult professional advisers before making any tax, legal, financial planning or investment decisions.

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Federation To Protect
Federation To Protect

Written by Federation To Protect

The Federation To Protect is a non-profit organization created with the purpose to provide responsible options to ensure consumers’ trust.

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