Should you buy or lease your car? Leasing vs. financing is a frequently asked question and an important financial decision that many must make. There is no simple, one-size-fits-all answer that deserves careful consideration. On the one hand, leasing usually results in lower car payments. On the other hand, purchasing means you own the vehicle once you complete the car payments. There are many other variables to consider, including the amount you drive and the likelihood of you keeping your car in good condition. Here are some tips to help you figure out whether buying or leasing is right for you.
This is part of our car buyer’s glossary. This series explains all the terms you need to know when purchasing a new or used car from a dealer.
Leasing a car
Leasing a car is similar to leasing an apartment. You enter into a contract to pay a fixed price and cover a set mileage over a set period of time. Your monthly lease payment depends on several factors, including the price of the vehicle, the size of your down payment, and the number of miles allowed per year. In general, leasing is cheaper per month than buying, all other things being equal. Considering how expensive cars have become — the average transaction price of a new car is about $44,000 in 2024 — lower monthly payments are attractive to many people buying a new car. According to a recent report from LendingTree, the average monthly payment on a new car loan was $738 in the fourth quarter of 2023. Some payments are much higher, while lease payments average about $606, according to the same report.
Another leasing option is one-pay leasing. Paying for the entire lease in one lump sum can save you significant fees, but you’ll need to have cash on hand. It’s not for everyone. Leasing is cheaper because you don’t keep any equity. For better or worse, once the lease is up, you simply pay for any damage or excess mileage and then return the vehicle unless you buy it out.
Leasing can be particularly attractive for buyers who don’t drive many miles on their car. The fewer miles a lease includes, the lower the monthly payment is likely to be. It is also important to know what the penalty fees for exceeding the mileage limit are. Even if you decide to return the vehicle early and end the lease early, fees may apply.
Buy a car
In contrast, financing the purchase of a car results in a higher monthly loan payment than leasing, but in the end you will own the car outright. You can only lease the car from the dealer, but you can get a car loan from your local bank or credit union, which means you can sometimes get a better deal. Know your credit score, find out loan interest rates, and get pre-approved before heading to the dealer. Visit the Autoblog Loan calculator to explore your loan payment options.
The advantages of leasing a car
Leasing can be a good choice if…
- You don’t want to spend a lot of money
- You often want a new car
- You agree to a car payment
- You drive less than 15,000 miles per year
- They generally keep your cars in good, undamaged condition
- You are entitled to write off the leasing contract for tax purposes
The disadvantages of leasing a car
- They are subject to mileage restrictions
- You do not retain any equity from owning the car
- You are liable for any damage or excessive wear and tear
- You’ll incur early termination fees if you don’t like the car or can’t afford the payments
- You lack the freedom to modify your car
The advantages of buying a car
Financing the purchase of a car can be a good choice if…
- You can afford a higher monthly payment
- You drive a lot
- You don’t need a new car very often
- Your cars tend to get a few dents and scratches
- At some point you will want to stop making payments
The disadvantages of buying a car
- Higher deposit
- Higher monthly payments
- You are responsible for long-term maintenance and repairs, especially after your warranty expires
With these tips you should have a much better idea of whether leasing or buying is the right step for you. Visit Autoblog.com to learn more.