Weighing the Benefits of Buying vs. Leasing

As our finance column debuts, we look at the benefits of buying vs. leasing when it comes to getting around, staying connected and keeping roofs over our heads.

If you’re like me, your school never offered a class in practical finance. You learned to budget, pay bills and save — either on your own or with advice from friends and family. That leaves a high margin for error when it comes to often-complex decisions like whether to buy or lease. Do you want to hold on to that phone, car, appliance or home for the rest of your life like your parents and grandparents did? Or would you trade that permanence for the possibility of always having something newer and more state-of-the-art?

Before we take a look at the differences between leasing and buying, let’s define what leasing is. According to Investopedia, “A lease is a contract outlining the terms under which one party agrees to rent property owned by another party. It guarantees the lessee, the tenant, use of an asset and guarantees the lessor, the property owner or landlord, regular payments from the lessee for a specified number of months or years. Both the lessee and the lessor face consequences if they fail to uphold the terms of the contract.”

Basically, if you lease anything, you are paying for the pleasure of using it until the end of the term when you return it back to the owner. Whether leasing or buying makes more sense to you will depend on both the costs and type of item involved — and your personal preferences.

Cars

Before interest rates became so agreeable, consumers generally purchased a car with the hope they would pay it off, thus eliminating a significant monthly payment. As the cost of even a mid-range car has risen to an average of $23,000, leasing has become more attractive.

When leasing, though your payments might be lower, someone else owns so the car; so you’ll gain no value from the money spent. Car leases also almost always contain penalties for early termination and other fees if you go over mileage limits (most range from 12,000 – 15,000 per year). But the benefits come at the end when have the option to buy or trade in for a newer model. When you purchase a car, you end up owning something, but that can also mean costly maintenance as the car ages and — considering the often poor resale value of cars — you may not see much return on your investment and selling may be a hassle you don’t want to deal with.

Personal Electronics

With the newest smartphones now costing more than $1,000, many consumers have turned to leasing rather than owning their phones. While you can still purchase a phone, nearly all carriers now offer Equipment Installment Programs (EIPs), and there are a few that offer a standard leasing contract as well.

Apple, Sprint and T-Mobile have leasing options with terms from 18 to 24 months with the option to upgrade every 12 months. Sprint, T-Mobile, AT&T and Verizon have EIP options (also ranging from 18 to 24 months). The difference when it comes to EIP plans is when you can upgrade, because each carrier has slightly different rules. Sprint and T-Mobile both allow upgrades after 12 months. AT&T offers upgrades after 12, 18, or 24 months depending how much your monthly payment is, and Verizon is anytime after the phone is paid off. Remember to ask your provider about additional fees, as all carriers have them.

Homes

Previous generations almost universally dreamed of buying a home they could live in it for the rest of their lives. Often, they didn’t move more than a few blocks from where they were raised — much less to different cities, states or countries. This was less true for many LGBT people, who often felt compelled to leave their roots in order to live openly — many migrating to cities where renting and leasing were more the norm. That seems to have set the trend for today. According to Pew Research Center, “more households are renting than at any point in 50 years.”

Probably the biggest factor in renting vs. buying a home is time. If you plan on staying in the same home for 30 years, expenses like closing costs and realtor fees shake out over the decades. But if you see yourself moving (for reasons from needing more space to live with a partner to relocating for work), paying those costs repeatedly can make home ownership less than financially ideal.

If you are questioning whether to keep renting or purchase that dream home, try using a comparison calculator like Nerd Wallet to determine what you could be gaining or losing.

The Final Word

Ultimately, deciding whether to lease or buy comes down to your personal situation. If you value the freedom to upgrade to a new car, gadget or home, leasing is likely your best bet. However — especially when it comes to property — if you’re happy with what you’ve got and you want to invest and build credit, it may be time to buy.

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