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Whether you’re looking to buy or rent a car, it’s never been easier to look into car ownership. According to new research CDK Global the automotive retail industry is continuously innovating on ways to facilitate online car shopping, which will ultimately cut-down on in-store time.

And that’s when you need to ask the age-old questions: purchase a car in full, or pay recurring monthly fees for a set number of years?

Here’s what to consider before making that choice.

Leasing

Leasing or financing a car means you are effectively renting in the same way you would an apartment. According to Cary Carbonaro, managing director at United Capital and author of The Money Queen’s Guide: For Women Who Want to Build Wealth and Banish Fear, leasing means you “always have a new car and maintenance is almost always included and under warranty.” Again, adhering to a lease is like renting an apartment, except instead of a superintendent or landlord, you have a dealership interesting in keeping your car up to date on repairs.

The cost of your monthly payment will of course depend on the make and model of the car (A Mercedes-Benz G-Class SUV will cost a lot more than a Mazda 3 sedan, for example). How the payments are calculated is by projecting the residual cost of the car after your term, and having you cover the cost of that depreciation in value in installments over the course of your term. For example, if the car worth $50,000 at the beginning and is expected to be worth $30,000 after three years, your monthly car payment will come out to around $555 (that’s the $20,000 difference divided into 36 months), minus the cost of any down payment you choose to pay upfront.

Your contract will dictate what type of wear and tear is acceptable at the end of your term, according to Jason Hargraves, managing editor at insuranceQuotes but in general, you’ll have to keep the car in good condition without any noticeable body damage.

If you’re the type to take several road trips per year, leasing might not be the best option for you. What can affect the cost of your monthly payment is the miles you expect to drive per year, with more miles increasing its cost. While the average mileage cap on most leases comes out to 12,000 miles, according to Edmunds, if you know you’ll be going over, it is far cheaper to pay for extra miles upfront than to cover excess mileage costs after the damage has been done.

Source: EpicStockMedia/Shutterstock

Buy

You have several options when it comes to buying. You can buy a brand-new car with zero mileage on it, a used car (the price will often depend on mileage), or your own leased car for a considerably lower fee after the term of your lease has ended.

Given that the value of a car declines rapidly the second it leaves the car dealership parking lot, it might be worth it to consider a demo car, which can cost several hundreds of dollars less than its brand-new counterpart. These cars are effectively “brand new” as well, but have a few hundred miles on them from test-drives. Think of them as the display models at a shoe store — they look and feel brand new under the supervision and maintenance of staff, but with relatively undetectable wear and tear.

Buying a car might be right for you if you plan to own it indefinitely as opposed to a set term. However, note that you might need to take out a loan to purchase a car in full, and paying interest on those payments can add up.

Insurance needs

Auto insurance is a crucial factor to consider when calculating the total cost of the car. According to Hargraves, if you lease your car, you will need collision, comprehensive and liability insurance. If you buy your car outright then you will only need to have liability insurance. “If you do file [a] claim when leasing or financing, you can expect any payouts to include the name of the lien holders or leasing company,” he said. Compare plan prices from reputable car insurance companies like Progressive, Geico, and Allstate.

One difference to note is that car leasers might be required to pay for gap insurance, which assists with car payments in the event you total your car, said Hargraves. Gap insurance might be built-in to your monthly car payments, so make sure it’s not an extraneous cost, or negotiate to include it in your monthly rate for a lower cost.

Marissa Miller
Personal finance and travel writer