- Leasing or buying a car is a choice that seems tough, but it gets easier once you consider your priorities and preferences.
- Leasing a car has a lot of advantages, but also a few important disadvantages to consider.
- Buying a car — an asset that depreciates fast — when car prices are rising seems like a bad idea now.
Should you buy or lease a car in 2022? This is a question that can be hard to answer. However, it becomes much answer to answer when you realize that there is currently an imbalance between supply and demand in the global automotive industry.
The global chip shortage and the war in Ukraine have created severe problems in the production of new cars. These were unexpected events that could weigh on your decision to either buy a lease new car. Some car manufacturers have problems equipping their cars with the latest electronics due to chip shortages and there are huge delays in getting a new car. For some it may take months or even more than a year.
As such, here are the main factors to consider when you are wondering if you should lease or buy a new car.
The Choice to Buy or Lease a Car Starts With Your Priorities
The most crucial answer to ask is whether you want to own an asset (in this case, a car) or not. This answer will help you decide between buying or leasing a new car much easier. If you love to have an asset, and a car is an asset to your total wealth, then you should consider buying a new car. If you love total freedom and want to be in total control of your new car, then you should also buy a car. By total freedom, I mean the ability to avoid restrictions that are typical of leasing a new car.
For example, do you want to choose the color of your car after a few years? If so, you should buy it. Do you feel restricted by the total miles you are allowed to travel with your car when you lease it? Then the option is clear: You should buy the car.
Suppose you have a specific car with a lot of extra features you want to buy, but you must wait months before you can purchase it. Alternatively, you can lease the same car and get it in a few days, but with less of the desired features? What would you do? It is a choice about preferences; a choice that can make the decision to lease a new car in 2022 a clear winner.
Leasing: Pros and Cons to Consider
There are several benefits to consider when choosing whether to lease a new car rather than buy one. One of the primary benefits is that it is generally less stressful to deal with. You do not own the car but pay a small deposit to book it, and then a monthly fee that covers everything, except fuel costs or electricity costs to recharge the car if it is an electric vehicle. Your monthly payment gives you the right to use the car without paying for insurance as it is included in the cost. Furthermore, you do not have to worry about any damages or any breakdowns after the guarantee is expired.
Usually, leasing lasts for three to four years, so you can drive a brand-new car and get the latest technology and trends in the automotive industry every few years. The maintenance is included in the monthly payment too, and in the event, your car breaks down, you will get another car while waiting for the problem to be fixed. All repairs are typically covered by the warranty.
There are also significant tax advantages for business owners with leasing, as the monthly payment fee is an expense for the business. This in turn can lower your total tax paid.
What are the cons of leasing a car?
In this article, we consider that at the end of the leasing agreement you will return the car to the leasing company and not buy it.
First, there is no ownership of the car. It belongs to the leasing company. There are mileage limits and other restrictions. For example, you must declare the person driving the car, other than yourself. You cannot make any modifications to the car, and there are early termination charges should you decide to terminate the leasing contract earlier.
In the long term, when you terminate a leasing agreement and start a new one, you may end up paying more since leasing will be more expensive than simply buying a car and keeping it for many years. There is, however, another important factor to consider: Depreciation.
Consider Depreciation When Buying a New Car
The fancy new car of your dreams depreciates the moment you drive it from the car dealership to your home. Imagine you invest in a premium car that’s worth $100,000. If you keep it for 10 years, then its value will be very low and you will have lost money, paying in the meantime a considerable amount for annual maintenance, insurance and unforeseen damages. If you plan to buy a car and keep it for several years, realize it is an investment with a loss.
The clear winner between leasing a car versus buying a car in 2022 depends on the above characteristics. Personally, being a car lover, I would prefer to switch to new cars frequently to get the newest models and latest technology. I also like to have a relaxed mindset about driving the car, not having to worry too much about damages or scratches. This makes leasing the best option in my opinion.
On the date of publication, Stavros Georgiadis, CFA did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.