Before you head to the dealership to pick up your new car, you have one important decision to make: lease it or finance it? Both options have their pros and cons, and understanding them will help you make the right choice.
Buying a car usually costs more overall — you pay the full purchase price plus interest on the auto loan. However, you gain ownership of the vehicle and can do with it as you please. Leasing typically comes with lower monthly payments, but you won’t own the car unless you choose to buy it at the end of the lease term. You’ll also need to follow strict usage limits and rules.
To compare both car ownership options, visit lease-vs-buy.com. By answering a short questionnaire, you’ll receive a personalized recommendation. You’ll also find detailed information about the specifics of lease agreements, including potential restrictions and hidden costs.
Leasing vs Buying a Car Pros and Cons
If low monthly payments, free maintenance, and the ability to drive a car that may otherwise be unaffordable is important — leasing a car is better than buying. However, buying a car also comes with its own set of advantages.
Let’s break down and compare the pros and cons of financing vs. leasing, as these are the two most common ways Americans get a new car (buying a brand-new vehicle outright with cash is not a typical option for the average consumer).
Benefits of Leasing:
- Often includes complimentary maintenance.
- Drive a new, late-model vehicle equipped with the latest features.
- No need to worry about the car’s long-term depreciation (residual value is predetermined or irrelevant if you don’t plan to buy the vehicle).
- Lower monthly payments compared to financing.
- Potential tax advantages for business use.
Drawbacks of Leasing:
- You don’t own the vehicle.
- You’re responsible for maintaining the car in good condition.
- Numerous restrictions apply — such as mileage limits, wear and tear standards, and no modifications — which may result in additional charges at lease-end.
- If your financial situation changes, you can’t just walk away. Early termination can result in thousands of dollars in penalties and fees.
Benefits of Financing:
- You own the car.
- No mileage limits.
- Scratches on the bumper or spilled drinks on the upholstery aren’t a big concern.
Drawbacks of Financing:
- Monthly payments are usually higher.
- Your budget may limit which cars you can afford.
- Maintenance costs can be significant, especially after the warranty expires.
- The future resale or trade-in value is uncertain, making budgeting more difficult.
Ultimately, your decision shouldn’t be based solely on the monthly payment amount, total cost, or how long you plan to keep the car. Other important differences between leasing and buying should also be considered.
Difference Between Leasing and Buying a Car
When you lease a car, you’re paying for depreciation, fees, and interest on the depreciated value. When you buy, you’re covering the full purchase price, loan interest, and sales tax. This creates a clear financial distinction from the start — and there are many other factors to consider. The table below compares key differences between leasing and buying a car:
Factors to Consider Before Deciding to Lease or Buy
Deciding whether leasing or buying a car is better depends not only on monthly payments, but also on how you drive, what your budget can afford and what your long-term goals are. The key factors to weigh before making a decision would be:
Budget: Leasing usually offers lower monthly payments, allowing you to drive a more expensive car than you could afford to buy, but it doesn’t encourage capital formation – only buying gives you full ownership of the car.
Driving Habits: When leasing, a tendency to be rough on the car and not being in the habit of keeping up with its maintenance can cost you more due to depreciation surcharges.
Daily Mileage: If you have a long commute to work or frequent long car trips, the risk of overpaying for exceeding the mileage limit is very high when leasing.
Preference for New Cars: If you are comfortable driving an older car, are not interested in the latest technology, and are willing to pay for post-warranty repairs, a lease will be more beneficial in the long run.
Still not sure which option suits you best? Try the quiz on lease-vs-buy.com to get a personalized recommendation based on your budget, lifestyle, and driving needs. Just a few questions can help you avoid costly mistakes and make a well-informed decision.