Should You Lease or Buy a Car?

Whether you need a car to get around campus, to-and-from your job or internship, or need freedom from public transportation, having access to a car while you’re in college offers many advantages. There are three main ways to get a car:

• Purchasing 
• Financing
• Leasing

Below we’ll break down the advantages and disadvantages of both leasing and buying a car to help you make an informed decision.

Leasing

Leasing a car involves paying a monthly fee to use the vehicle for a predetermined period, typically 2-4 years. You’ll make an initial payment to cover the fees and taxes, then you’ll pay a monthly fee over the length of the lease. Because the payments are lower, leasing allows you to drive a newer, nicer vehicle than what you’d be able to afford with buying. At the end of the lease, you can either return the vehicle and lease a new car or purchase the leased vehicle. 

Advantages:

1. 
   Lower Monthly Payments: Leasing a car often has lower monthly payments than buying a car. This is because you are only paying for the depreciation of the car during the lease period rather than the full cost of the car.
   Lower Upfront Costs: Leasing a car typically requires a lower down payment than buying a car. This can be beneficial for students who may not have a lot of money saved up.
   Warranty Coverage: Since the car is new, it is usually covered by a warranty throughout the lease period. This can save you money on repairs and maintenance.

Disadvantages:

1. 
   Mileage Restrictions: Most leases come with mileage restrictions, typically 12,000-15,000 miles per year. If you exceed this limit, you will be charged a fee for each additional mile. Not a big deal if you’re using the car locally, but if you were planning on a lot of road trips or driving out of state it’s something to consider.
   Wear and Tear Fees: In addition to mileage there are leasing rules about keeping the car in the same condition it rolled off the lot in plus minor wear and tear. If the car has damage when you turn it in at the end of your lease you could be hit with fees.
   No Equity: When you lease a car, you are essentially renting it. This means that you do not build any equity in the vehicle, and you do not own it at the end of the lease though many leases do offer you the option to buy the car at the end of the lease for a price set by the dealership.
   Fees and Charges: Leasing a car often comes with additional fees and charges, such as a security deposit, acquisition fee, and disposition fee. These can add up quickly.
2.  

Buying

Buying a car involves paying the full price of the vehicle or financing it over a period of time with a loan. You usually put some money down, then you’ll secure an interest rate based on your credit score. Every month you’ll make a payment that includes the principal and interest and once you’ve paid off the full amount you’ll become the legal owner of your car. 

Advantages:

1. 
   Ownership: When you buy a car, you own it. This means that you can modify it, sell it, or keep it for as long as you like. When you’re ready for a new car you can trade in or sell your old one to help pay for your next vehicle.
   No Mileage Restrictions: When you own a car, you can drive it as much as you like without worrying about mileage limits or fees.
   Long-term Savings: While buying a car may have higher upfront costs and monthly payments, it can be more cost-effective in the long run. Ideally you’ll be able to drive your car long after you’ve paid off your loan.
2.  

1. 
   Higher Monthly Payments: Buying a car often has higher monthly payments than leasing a car because you are paying for the full cost of the vehicle.
   Higher Upfront Costs: Buying a car typically requires a higher down payment than leasing a car.
   Depreciation: When you buy a car, it immediately begins to lose value. This means that if you decide to sell it later, you may not get back the full amount you paid for it. 
   Maintenance Costs: Owning the car means any maintenance costs or repairs come out of your wallet. This means everything from regular oil changes to new tires to replacing parts of the engine are your responsibility, with a lease many of these costs are covered.
2.  

Factors to Consider in Deciding to Lease vs Buy

Your budget is the biggest factor in deciding whether to lease or buy. Leasing is more affordable than financing a car, however buying a car is cheaper in the long term if you’re able to pay it off. The easiest way to calculate how much you can afford to spend is to calculate 10% of your take-home pay.

For example, if you make $2,500 a month, you can afford a $250 a month car payment. The longer your loan terms are, the more interest you’ll pay, so try to aim for no more than 36-48 month long loans. Using the $250 payment, a good credit score, and a 48 month loan, you could afford about $8,200, plus whatever money you have for a down payment.

Remember cars also come with additional expenses like gas, insurance, registration, and repairs and maintenance. 

The other consideration is what you’ll be using the car for. If you go to school in a city where you need a car to get to and from your job or campus but not much else, leasing might be a good option for you. If you’re hoping to use your car to drive out of state to visit friends and family or go on road trips, buying a car might be a better option. 
 

Conclusion

Both leasing and buying a car have their advantages and disadvantages. Leasing may be a good option for students who want lower monthly payments and lower upfront costs, while buying may be a better option for those who want to own their car and save money in the long run. Ultimately, the decision depends on your personal circumstances and preferences. No matter which method you choose, make sure to do your research on cars that hold their value, have good safety scores, and get good fuel economy.

Car Loans with KoraDrive

If you do choose to buy a car, KoraDrive can help! We offer car loans specifically for students, even those with no credit history. We don’t require a co-signer or social security number - international students studying in the U.S. are welcome to apply! Check out more details and see if KoraDrive is available in your state by visiting Kora.com/Drive.