Leasing vs. Buying a Car: Pros and Cons | Travelers Insurance (2024)

It can be a tough choice deciding whether to lease or buy a car. Leasing a car means you’ll have lower monthly payments and you can typically drive a vehicle that may be more expensive than you could afford to buy. On the other hand, if you decide to buy a car, you’ll own it in the end, even if it means you’ll pay a higher monthly loan payment in the meantime. Perhaps the best way to decide is to understand the pros and cons of leasing vs. buying a car, how leasing a car works and what tips for leasing a car might help you get a good deal.

What Is a Car Lease?

You may hear car leasing likened to leasing an apartment, and there are similarities between the two. When you lease a car or an apartment, you lease the property for a specific amount of time. You and the property owner have a mutual understanding that the assets will be returned in good condition.

Yet there are additional considerations for leasing a car that you will not have when leasing property. Many car lease agreements last two to three years and typically allow you to purchase the car at the end of the term. Car lease agreements limit the number of miles the vehicle can be driven annually, generally between 12,000 to 15,000 miles. If you exceed the agreed upon mileage, you may owe around 25 cents per extra mile.1

How to Lease a Car

If you’re thinking of leasing a car, review car dealership websites, then call or visit the dealership to inquire about lease specials and selections.

Typically, consumers looking to buy a car are interested in getting the lowest sale price. That price, combined with the annual percentage rate (APR) of the interest on the car loan as well as taxes on the vehicle, will be spread out over the course of a multiyear loan. However, since the term of the lease is typically shorter than a car loan term when leasing a car, you’ll likely want to seek the best overall lease price with the lowest possible payment that includes all taxes and fees.2

Shop at different dealerships before you select a car to lease, just as you would if you were buying a car.

Tip: Ask for all lease terms from each dealership in writing, so that you can compare all fees, prices and terms.

Pros of Leasing a Car

1. Higher-End Vehicles

Some people choose to lease a car because it allows them to drive higher-end cars for a more affordable monthly payment. Plus, a two- to three-year car lease allows drivers to easily and frequently upgrade their rides.

2. Monetary Perks

Of course, not everyone leases because they want luxury wheels. Lower down payments, warranties and free routine maintenance are among the benefits lease customers typically get when leasing a car.

3. Depreciation Protection

Leasing helps protect you against unanticipated depreciation. If the market value of your car unexpectedly drops, your decision to lease will prove to be a wise financial move. If the leased car holds its value well, you can typically buy it at a good price at the end of the lease and keep it or decide to resell it.3

4. You Can Choose to Buy a Car at the End of the Lease Period

Some drivers fall in love with their leased cars and decide to buy them. Typically, you can buy the leased car at the end of the lease term. The price is generally the car’s residual value plus processing fees required by the manufacturer. Buying a leased car for less than its current market value could be a good financial move.

5. You May Be Able to Transfer Your Lease to a New Driver

If you decide that you don’t really love the car you’ve leased, you don’t have to be stuck with it. Just make sure your contract allows you to transfer the agreement to a new driver for the remainder of its term, before you sign the lease. One thing to note: Your financing company may charge you a lease transfer fee that could amount to several hundred dollars, but if you’d like the ability to opt out of a car you don’t want to keep, leasing can provide that option if you ask for it.

Cons of Leasing a Car

1. You Don’t Own the Car

The obvious downside to leasing a car is that you don’t own the car at the end of the lease. That means you don't have a trade-in if you decide to purchase a car. Consumers who routinely lease cars over many years may end up paying more than they would if they had initially bought the car.

2. It Might Not Save You Money

Another thing to consider: You can break an auto lease, but it typically will cost you a hefty fee. Yes, you can sign a long-term lease, but that may negate the monetary benefits of leasing instead of buying a car.

That’s because leasing typically costs you more than what you might have taken out in a long-term car loan. Do the math to figure out if the numbers work in your favor to sign a long-term lease.

Similarly, some carmakers offer discounted leases to generate interest in their models. Be careful to read the fine print to make sure your savings isn’t offset by additional fees that the dealer may require. For example, the discounted price may not include the sales tax or various “drive-off” fees. Be skeptical of any deal that sounds too good to be true.

3. Leasing Can Be More Complicated Than Buying

Buying a car is straightforward compared to leasing. When leasing a car, you are typically paying for the car’s lost value over the term of the agreement, plus a set of fees. Lease contracts can be complex. To find a good deal, study your contract carefully and ask questions about anything you don’t understand.

4. Leased Cars Are Restricted to a Limited Number of Miles

Every lease agreement has a stated number of miles you’re allowed to drive without paying a penalty. This limit typically is 12,000 to 15,000 miles.4If you exceed your limit, you’ll be hit with an excess mileage penalty that can add up fast.

5. Increased Insurance Premiums

Typically, leasing a car does increase your insurance premiums because you are required to purchase full coverage to ensure there are sufficient funds available to repair the car in the event of an accident. The entity financing the vehicle typically requires this because they have a financial stake in the car.5Full coverage includescollision coverageandcomprehensive coverage. These not only provide coverage in the event of accidental damage, but also theft or vandalism, should the car be damaged during the term of your lease.

Another consideration isgap insurance, which covers the difference between the current value of your car versus the remaining balance owed. Many leased cars have this type of insurance factored into the cost.

Should I Buy My Leased Car?

Just as you consider many factors when you lease a car, you should analyze the costs and benefits of buying the car at the end of the lease.

First, do you like the car? Do you enjoy driving it and does it suit your needs? That may seem like a funny question, but consider your lifestyle. If you leased a small, compact car so you can easily maneuver through traffic and are moving to a rural area where you may need a vehicle that has sturdier road-handling capabilities, you may find the compact car unsuitable for your new location. On the other hand, you may not want to drive a large SUV if you are moving to a congested urban area.

Are you happy with the car’s performance? How is the gas mileage? Is the car often in the shop for warranty work? Analyze how much the car’s upkeep will cost you if you do buy it.

If you decide you’d like to buy your leased car, look at the residual value. How much is the car worth and how much would you pay to get out of your lease before it expires?

There are various strategies to help save money when buying your leased car, including financing through your bank or working directly with the lender (the creditor that owns the car). If you decide to buy the leased car, explore all your options.

As with most personal financial decisions, the pros and cons of leasing a car come down to a host of factors. Analyze your needs and budget and then shop to make sure you make the right decision for you.

Talk to your local independent agent or Travelers representative to learn more aboutcar insurancefrom Travelers.

Leasing vs. Buying a Car: Pros and Cons | Travelers Insurance (2024)

FAQs

Is insurance cheaper when you buy or lease? ›

Because most leasing companies will require you to purchase more coverage on an auto insurance policy, insuring a leased car is often more expensive than insuring a car you own outright. But you might still be able to bring your rate down to a number you can live with, particularly by shopping around for rates.

Is it more financially beneficial to lease or buy a car? ›

Unless you habitually buy and sell cars every couple of years, taking out a loan is probably the more cost-effective approach. This is because even though you've paid less during those first few years, you have no equity in the car when the lease expires.

What are 5 disadvantages of leasing? ›

Disadvantages
  • Lease increases. Many leases are set up to allow annual rent increases, while others often increase costs when your lease expires and needs to be renewed.
  • Lease renewal ends – change of business location. ...
  • No equity in building. ...
  • Little control. ...
  • Less space for growth.
Oct 23, 2018

What are 3 cons of leasing a car? ›

Cons of Leasing a Car
  • You Don't Own the Car. The obvious downside to leasing a car is that you don't own the car at the end of the lease. ...
  • It Might Not Save You Money. ...
  • Leasing Can Be More Complicated Than Buying. ...
  • Leased Cars Are Restricted to a Limited Number of Miles. ...
  • Increased Insurance Premiums.

Why is it better to buy than lease? ›

While leasing may get you into a car with no down payment, you can make lease payments for unlimited years without ever owning a car. But if you buy and keep a car, especially one that's pre-owned (meaning it's seen the majority of its depreciation already), you can save far more money overall.

Does leasing a car increase your credit score? ›

In other words, a vehicle lease agreement can help you build credit in the same way an auto loan can. As long as your dealer or leasing company reports to all three credit bureaus—Experian, TransUnion and Equifax—and all your payments are made on time, an auto lease can certainly help to build your credit history.

Why leasing a car is smart? ›

Instead of paying for the entire value of the car, your monthly payments cover the vehicle's depreciation (plus rent and taxes) over the lease term. Since you're only financing the depreciation instead of the purchase price, your payment will usually be much lower.

What credit score is needed to lease a car? ›

A score of 700 may be enough to get your foot in the door at most places, but a higher score never hurts. Those with lower scores aren't out of luck entirely, but they may have less favorable lease terms and may have to bring more cash to closing to get their hands on the keys.

Is leasing a car worth it in 2024? ›

In 2024, whether to buy or lease a car depends on your individual needs and lifestyle. With manufacturers pushing more attractive lease deals, leasing may become a more appealing option for many. Leasing is a great way to avoid the worst effects of today's high interest rates.

Why is it not good to lease a car? ›

Strict rules: Because you don't own the vehicle, lease agreements typically have strict rules to prevent excessive mileage or wear and tear. You also can't make any modifications to the vehicle during your lease term. If you breach the contract, you could be on the hook for hefty fees.

Does leasing hurt your credit? ›

Whether you lease or buy, a new vehicle can impact your credit score. With a lease, you have a monthly payment obligation. When the lease ends, there's likely to be either a new lease or a new monthly cost for a vehicle purchase. In either case, credit utilization is increased, and that can reduce your credit score.

What happens at the end of a car lease? ›

Car leases are generally created to allow the car lessee to turn the car in at the end of the lease term or purchase the car in a buyout. However, you can also choose to sell a leased car back to dealership or sell the car to a third party.

Is it a waste of money to lease a car? ›

Key Takeaways: Leasing a car is a better idea if you can't afford to take care of a vehicle and make larger monthly payments. Buying a car is better for those who want ownership of a car and can afford the costs of owning a vehicle such as maintenance, repairs, and gas.

What is the truth about leasing a car? ›

The most important factor to consider is that leasing is like renting, and your payments won't go towards owning the car, unless there's an option to purchase it. Instead, you'll need to return the car once the lease ends. To help you choose the best option for you, here are some of the key factors in buying vs.

Why are car leases so expensive now? ›

Why are car leases so expensive now? The cost of cars has significantly increased, as has the cost of leases. Plus, many current lease contracts aren't as favorable toward drivers as they once were – a result of increased demand for new cars.

Are leased cars cheaper to insure? ›

Since the insurance requirements for a leased car are typically greater, it can cost more to insure a leased vehicle than a financed or owned vehicle. However, leasing a vehicle may give you lower monthly payments than financing, so car payments and insurance rates are a trade-off.

Is it a good idea to lease a car? ›

Car Leasing Pros:

You have lower monthly payments with a low — or no — down payment. You can drive a better car for less money. You have lower repair costs because you are under the vehicle's included factory warranty. You can more easily transition to a new car every two or three years.

Are lease prices negotiable? ›

It's crucial to negotiate a lease deal as it can greatly impact the overall cost of the lease. You can secure a more advantageous deal by negotiating the lease terms, such as monthly payments, down payment, and mileage limits.

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