To Lease or Buy: Making Your Luxury Car Dreams Reality

Deciding between leasing or buying your dream car boils down to your specific priorities and interests. Leasing or buying a car is solely a financial decision for some people, while others are more concerned about establishing an intimate bond with their vehicle. 

Those who are more concerned about creating a connection with their car may be willing to put up more money toward the vehicle without hesitation. 

However, someone who is more focused on the financial aspect of getting a new car will be more compelled to ask the car salesperson, “Does having a sports car increase insurance?” while hesitating to drop a large amount of money on a luxury vehicle.

Leasing a car has become a popular option to purchasing as car prices climb and owners seek the newest safety features that are only available on newer vehicles.

A lease allows owners to pay monthly to drive a new vehicle for a fixed period of time. The monthly payment is frequently smaller than the cost of financing a new car, and owners must return the vehicle at the end of the leasing period.

Buying a vehicle with a traditional auto loan is pretty simple. You borrow money from a mortgage, credit union, or other financial entity and make annual payments for a certain number of years.

However, the higher your interest rate, the more the monthly bill will be. When you repay the principal, you accumulate equity. You own the whole vehicle at the completion of the loan.

The Pros of Leasing

Leasing seems to be more attractive than purchasing on the surface. Since you aren’t repaying the interest, your monthly contributions are normally smaller. 

You borrow and repay the difference between the car’s current valuation and its estimated value at the completion of the lease. You may also have to pay financing fees. 

Beyond having lower monthly payments to temporarily keep and operate a newer car, other major benefits of leasing include:

• Operating a newer-model car: Being able to operate a newer-model car means you are still under a manufacturer’s warranty, which could include free oil changes and other routine repairs.
• Having a manageable car note: It is easier to adhere to a household budget because you have a predictable monthly bill and no unexpected maintenance costs.
• Driving a luxury car with safety features: You can drive a car that is more expensive and better equipped than you could normally afford. You can get the chance to drive the next Mercedes that is substantially faster than a vehicle you can normally afford to buy.

Also, leasing can encourage you to choose a vehicle with life-saving safety features that are not available on lower trim levels or used vehicles.

• Selling the car is not a concern: You won’t have to stress over the car’s trade-in value fluctuating or the inconvenience of selling it when it’s time to upgrade.
• Repairs and maintenance are less of an issue: You drive the car when it’s more likely to have no mechanical errors.

The Cons of Leasing

In the long run, leasing is normally more expensive than taking out a loan to buy a car because you’re driving an increasingly depreciating product. When buying a car, the depreciation is offset by the equity you earn from making payments toward interest on a loan.

If you lease one vehicle after another, your annual installments will continue indefinitely. In comparison, the more money you get out of a car after the debt is paid off from an auto loan, the longer you keep it. 

Long term, the only cost-effective way to drive is to own a vehicle and keep it until it becomes economically unfeasible to maintain. Other cons associated with leasing a car are:

• Being limited to a specified number of miles
• Paying excess fees on wear-and-tear and mileage penalties
• Having to pay for expendable items (like tires) on an expensive vehicle 
• Early termination fees and penalties if you no longer want the vehicle
• Not being able to add customizations to the car (like adding a giant grille to your BMW)

What goes into buying a car?

When you purchase a vehicle, you enter into a binding obligation to make recurring installments for a set time before you own the car outright. For others, purchasing a vehicle could be a safer choice because:

• You have full control and ownership of the car 
• You’re free to make modifications to the vehicle without violating any contracts
• You’re free to travel as much as you like without regard for mileage quotas
• When you’re through with it, you can resell it without penalties 

However, when buying a car, you have to consider whether you want to buy new or used and base what you can afford on your salary and credit.

Since the interest rate you’ll pay on your loan is directly related to your credit score, it’s not financially responsible to borrow more money than you can comfortably repay. Borrowing a lot of money to buy your dream car can lead to an unreasonably high car note because of interest.

For instance, a person with a credit score of 720 is likely to be given a loan at a rate of about 5.75 percent. For the same loan amount, an individual with a credit score of 660 would likely see the interest rate rise to about 9.2 percent, resulting in a $15-$20 spike in monthly payments.

How to Get Lower Insurance on a Luxury Car

No matter if you choose to purchase or lease your dream car, you’re going to have to get insurance on it. Insurance on a luxury car can be expensive, but there are ways to lower that monthly premium.

Due to repair and depreciation prices, high-end premium vehicles can be more costly to cover. If you’re in an accident, the cost of repairing such expensive vehicles can be exorbitant, and insurance companies are well aware of this. 

As a result, to save costs, they charge their consumers higher rates.

Aside from purchasing a luxury car that is less costly to fix, here are several other ways to save money on insurance premiums for your luxury vehicle:

• Take advantage of good-driving discounts
• Increase your deductible
• Shop around for insurance providers 
• Move closer to your job
• Improve your credit
• Drive safely and keep a clean driving record
• Take a defensive driving course

Being a responsible adult takes effort, and the effort should be compensated. Even the most frugal person can buy a luxury vehicle, so be kind to yourself and accommodate for a little indulgence. 

Whether you drive your dream car by leasing or purchasing is entirely dependent on what you are willing to sacrifice and your personal financial situation.

Imani Francies writes and researches for the auto insurance comparison site, AutoInsurance.org. She enjoys helping people find the best auto insurance policy and rates that meet their specific needs.