Leasing 101: How To Figure Out If Renting Is Right For You
What’s the difference between renting and owning?
When it comes to big purchases, like a home or a car, one of the big decisions we have to make is whether to rent/lease or buy on our own.
With a rental or lease (no matter what it is), you are simply borrowing something from someone else for a set period of time. If you’re purchasing outright or making payment plans, you will own it at the end of the payment schedule.
Common examples of things you can lease/rent or own are houses, cars, computers/technology, furniture, and larger equipment (commercial kitchen equipment, yard equipment, etc.).
For some of these, it’s easier to determine whether you should buy or rent. If you just need a couple stumps removed from your yard and have a free weekend coming up, you can certainly get by renting a stump grinder rather than buying one.
Cars and housing, however, tend to be more difficult decisions. Here are some ideas for creating a cost-benefit analysis for buying or leasing in your situation.
Pros of Leasing or Renting
Typically when people consider leasing or renting, they assume that a lease means greater flexibility and lower costs per month, which tends to be true, depending on the details of the lease or rent.
- Can have more “luxury” than you may otherwise be able to afford.
- It lasts a set amount of time.
- Lease payments are typically lower than loan repayments (and don’t accrue interest).
- You don’t have to sell or trade-in to get a replacement.
- Down payments are low or non-existent compared to ownership.
- Leases and rentals offer flexibility; you aren’t “tied down” after they end.
- When it comes to homeowners, you do not have to worry about extra or unexpected costs such as property tax, replacing the furnace when it stops working, etc.
Cons of Leasing and Renting
While the flexibility and lower costs of renting/leasing are enticing, there are some downsides that you should consider as well.
- When it comes to leased cars, you are responsible for all maintenance and need to keep documentation of doing so at the end of the lease. Sometimes with housing rentals, you may be responsible for certain aspects of maintenance as well. In other words, you have some responsibility.
- Leased cars have mileage restrictions (usually a set amount per year)- if you go over it’s similar to data overage fees for your phone, and you pay extra.
- Most car leases, and some home/apartment rentals, require good credit to qualify.
- At the end of the lease, you do not own anything. You will have to find a new car or place to live (unless it is up for renewal). The benefit of ownership is stability.
- If something happens (i.e. a better offer comes along), you may face early termination fees if you want to get out of the lease early.
- When it comes to customization and changes, you can’t do anything permanent. Occasionally, home renters can make some changes if they discuss with the homeowner first (such as painting walls, installing shelves, etc).
When it comes to leases vs. purchasing, there’s no clear black and white answer on what’s better. A lot of it comes down to the terms you are agreeing to so read any leasing (or other) agreement carefully and make sure you understand it.
Once you understand the agreement, you can do some math to determine monthly costs (including ‘extras’ like interest, insurance, taxes, etc).
Know your priorities and whether you prefer flexibility or stability, and understanding the conditions of a lease will allow you to judge what’s best for you.
Buying vs. Leasing from Cars-U.S. News https://cars.usnews.com/cars-trucks/Buying_vs_Leasing/
Pros and Cons of Leasing from Consumer Reports http://www.consumerreports.org/cro/2012/12/pros-and-cons-of-leasing/index.htm
Why the Rent vs. Buy Debate is Completely Pointless http://twocents.lifehacker.com/why-the-rent-vs-buy-debate-is-completely-pointless-1773179027
Renting vs. Owning a Home: Pros and Cons from Investopedia