Pros and cons of leasing vs. buying a car
Getting a new car is a very exciting milestone. But before choosing a black or red SUV or truck, you should first decide whether to lease or buy your next ride.
Leasing can get you more affordable monthly payments. But the cost savings may not be enough to justify the downsides of leasing, making buying a car a better choice.
Car Leasing Vs. Purchasing: Summary
Leasing and buying are both valid ways to get your hands on a new vehicle. Buying offers fewer restrictions than leasing on how much you can drive and what you can do with the vehicle car. Also, at the end of the loan you own the vehicle. But month-to-month leasing is a less expensive option if you want to move into a luxury car.
Leasing or buying depends on these factors: the miles you expect to drive, the amount you are willing to spend, and the purpose of the vehicle. Use the calculator to determine whether leasing or buying is better for your budget.
Who is leasing best for?
Leasing is the perfect option for you if you want to get behind the wheel of a vehicle without making a significant financial commitment. Leasing simplifies monthly expenses to a more manageable number. It allows you to drive more luxuriously than you could otherwise afford.
But keep in mind the mileage restrictions and potential additional wear and tear charges that come with leasing. If you like long road trips, leasing may not be right for you.
Who is it best to buy for?
If you like to be in complete control when it comes to your vehicle and finances, buying may be best for you. You won’t have to worry about mileage restrictions or potential extra charges for things like wear and tear.
Although buying or financing your vehicle through a loan takes some extra homework, you’ll have full control of the vehicle and can sell or trade it in at any time—an advantage that leasing can’t offer.
Related: How to Best Pay for College: 8 Expert-Approved Tips
Leasing a car
When you lease a car, you pay for the right to drive the vehicle for a certain period of time – usually three or four years. Most leases are financed by the dealer.
You’ll usually pay an initial amount before you drive your new vehicle to cover taxes and fees. From there, you’ll make monthly payments over the life of the lease to cover the depreciation costs of the vehicle.
There are usually restrictions on the number of miles you can drive the car during the lease term. You must return the vehicle to the dealer in excellent condition to avoid additional fees.
Benefits of leasing a car
Leasing comes with an assortment of benefits that can result in significant cost savings.
- Lower payments.
- If you’re trying to keep your monthly expenses in check, leasing a new car costs less month-to-month than buying one.
- Less money down. In addition to what you pay during the lease, the initial sticker shock might not be so bad: You’ll be able to drive off the lot without putting any money down.
- Manufacturer’s Warranty Options. When you have the keys, you’ll benefit from warranty protection, which typically lasts for the first three years or 36,000 miles.
Disadvantages of renting a car
Unfortunately, there are lease restrictions and other drawbacks that are worth considering before signing on the dotted line.
- Mileage Restrictions. Most leases come with annual mileage restrictions, usually between 10,000 and 15,000 miles. If you exceed that limit, you’ll pay a premium — usually about 30 cents per mile.
- There is also a fee for any wear and tear that is considered “excessive”. This includes anything but minor scratches and dings.
- In the end you won’t own it. Unless you choose a lease buyout – which will likely involve financing anyway – your monthly payments will continue when you renew your lease or lease a new vehicle. This means you are never without payments and never outright own the car.
Buying a car
Buying a vehicle means that you retain possession of the car instead of leasing it for a few years. If you are looking for a brand new car, the price can be high. The average cost of buying a new vehicle in June 2022 was more than $48,000, according to Kelly Blue Book data.
There are other more affordable options for buying a car, however, including certified pre-owned vehicles (CPO) and used cars.
For a new car purchased with a loan, the price tag for your monthly payments is usually higher than for a lease. However, once the payment is made, the vehicle is officially yours.
Buying a car will be beneficial
Buying allows you to build equity in a valuable asset, among other benefits.
There is no mileage limit. When you buy a car, you don’t need to keep track of your mileage. If you want to rack up 100,000 miles in a year, you can do so without worrying about extra fees.
No wear and tear charges. You don’t have to worry about what the dealer considers normal wear and tear.
Ability to sell or trade in vehicle. Because the car is yours, you won’t have to worry about what to do when your auto loan is paid off in full. When you’re ready for a new vehicle, trade or sell your car at its current market value, depending on mileage and condition.
Disadvantages of buying a car
Car ownership is not without its downsides.
Higher monthly payments. When you buy a car, you will probably spend more every month. For example, according to Experian’s State of the Market report for the second quarter of 2022, the average monthly payment for Honda Civic buyers was $476 — $113 more than the average monthly payment for leasing it.
A large down payment is required. If you put more money down, you can reduce the amount you need to borrow and — by extension — those monthly payments, but it will take a bigger chunk of your savings.
Long-term maintenance costs. Finally, owning a car means paying to fix something when it breaks. The warranty may cover some things, but once it expires, you are fully responsible.
Whether you choose to lease or buy a car, it’s important to remember a few key factors.
Your credit score is the primary measure of your ability to afford your monthly payments. Aim for a score between 680 and 740 for leasing and 660 or higher if you choose to buy.
As Experian’s State of the Market report points out, here’s why:
- The average lease payment for subprime borrowers, or individuals with credit scores between 501 and 600, was $559, compared to $517 for super prime borrowers with credit scores between 781 and 850.
- Average monthly payments for used auto loans were $531 and $485, respectively. Consumers who financed new cars paid $692 and $640 per month, respectively.
- Consider the time of the month, year, or even week when you decide to head to the dealership. The holidays or colder months may mean you walk away with a better deal.
Determining whether you should lease or buy a car depends on a careful assessment of your finances and driving habits. Think about how much you can comfortably afford to pay upfront each month and consider how many miles you put on the road to find the most cost-effective way to hit the highway.
When you know what kind of car you want, crunch the numbers with a buy vs. lease calculator. Also, shop around for financing and compare your rates to make sure you’re making the best financial move.