Leasing Vs Paying Cash for Car

Leasing payment versus paying cash for a car saves you money within the first few years, or at least for the term of your lease. While a lease payment may appear attractive, you should consider your needs, long-term finances and vehicle use to determine if the option benefits you financially.

Restrictions

During a lease, the bank owns the vehicle and you do not. Therefore, you must adhere to the lease terms that are stated in your contract. You must make repairs, follow the maintenance schedule and stay beneath the mileage allowance you agreed to. You cannot modify the vehicle in any way, either. If you pay cash for a car, you own it and are free to do with it as you please. You do not have to complete vehicle maintenance, you can drive it as much you'd like and modify it.

Warranty Period

Most vehicles come with a standard 3-year, 36,000-mile bumper-to-bumper warranty, if not more. Many leasing terms and mileage restrictions fall into this range. Because it's likely you'll turn in the car at the end of the leasing term, you do not need to purchase an extended warranty. If paying cash, you may have to consider the price of an extended warranty, if you plan to keep the car. Otherwise, you are responsible for all repairs outside of the manufacturer's warranty period, which can prove more costly than the extended warranty itself.

Lease End Options

You can purchase your vehicle at the end of the leasing term if you wish to. You can pay cash or finance the remaining money due. While this may seem like a benefit, because you can take the term of your lease to decide, purchasing at the end of the lease is likely to cost you more than it would have if you paid cash. Unless negotiated, leased vehicles are sold at the manufacturer's suggested retail price (MSRP). Many lessees are attracted to the monthly payment, and not so much the price of the vehicle.

Loss

If you pay cash for a car, you do not have to maintain a full coverage insurance policy but are required to during a lease. Full coverage policies are the most expensive to purchase. Should you total your vehicle or it becomes a total loss, you can expect to receive the full market value for it if you paid cash, assuming you carried the coverage. If you lease a vehicle, you will not receive any money towards the value of the vehicle. The leasing bank is the insurance policy's loss payee, so even if you paid your entire lease up front, the payoff amount goes to the lender.