Pros and Cons of Leasing or Buying a Car (2024)

Should you lease or buy a new car? Typically, the choice comes down to priorities. For some drivers, it’s purely a matter of dollars and cents: Which is the less expensive option right now? For others, it’s about the benefits of ownership.

Before choosing the road you go down, it’s important to understand the key distinctions between leasing a car and buying one.

Key Takeaways

  • Leasing a car means that you basically rent it for a specific and limited time period.
  • Buying a car means that you own it outright and build equity in the vehicle with monthly payments (if you finance the purchase).
  • Benefits of leasing usually include a lower up-front cost, lower monthly payments compared to buying, and no resale hassle.
  • Benefits of buying usually are car ownership, complete control over mileage, and a firm idea of costs.
  • Experts generally say that buying a car is a better financial decision for the long term.

Lease or Buy a Car: What’s the Difference?

When you lease a vehicle, you pay to drive it for a certain length of time. The average lease is 24 or 36 months, although you can find even longer leases. Restrictions apply to how many miles you can drive and modifications that you may wish to make to it. Various fees will apply.

Once your lease period ends, you have the option to return the vehicle to the dealer or purchase it at a predetermined amount, as defined in the lease contract.

When you buy a car, you immediately take title to it. You own it outright if you pay for it with cash or after a loan is paid off if you finance your purchase. You maintain control over all aspects of the vehicle and ultimately can keep it, trade it in, sell it, or give it away.

Pros and Cons of Leasing or Buying a Car (1)

Pros and Cons of Leasing

Lease payments are generally lower than the monthly loan payments for a new vehicle. They depend on these factors:

  • Sale price: This is negotiated with the dealer, just like with a vehicle purchase.
  • Length of the lease: This is the number of months that you agree to lease the car.
  • Expected mileage: The lease sets the maximum number of miles that you can drive the car each year. Most leases come with the choice of a 12,000- or 15,000-mile annual allotment. The monthly payment will increase slightly if you go for the higher yearly mileage. If you exceed the mileage limit in the contract, then you will be expected to pay the dealer for every extra mile at the end of the lease.
  • Residual value: This is the vehicle’s value at the end of the lease, with its depreciation figured in. If you decide to purchase the vehicle once the lease expires, this is the amount that you will pay.
  • Rent charge: This fee is shown as a dollar figure rather than a percentage, but it is the equivalent of an interest charge.
  • Taxes and fees: These are added to the lease and affect the monthly cost.

Some dealers or the manufacturers that they represent require a down payment for a lease. The more you put down, the lower your lease payment will be.

Keep in mind that it may not make sense to put too much cash down on a vehicle that you’ll ultimately be handing back to the dealer. If you’re quite sure that you’re going to buy it when the lease expires, the down payment will reduce the cost of purchase.

Pros

Lower Monthly Costs

A lease can slightly ease the financial burden of monthly costs. Leasing usually involves a smaller down payment compared to buying. Due to this, some people opt for a more luxurious car than they otherwise could afford.

New Car Every Few Years

For many people, there’s nothing like the feeling of a brand new ride. When a lease is up, you can return it and get your next new car. By leasing, you also get the latest advances in car technology every few years.

Worry-Free Maintenance

Many new cars offer a warranty that lasts at least three years. So when you take out a three-year lease, most of the repairs may be covered. Leasing arrangements can potentially eliminate some significant, unforeseen expenses.

No Resale Worries

You simply return the car (unless you choose to buy it). The only thing you have to worry about is paying any end-of-lease fees, including those for abnormal wear or additional mileage on the vehicle.

Potential for Tax Deductions

If you use your car for business purposes, a lease may afford you more tax deductions than a loan. That’s because the Internal Revenue Service (IRS) allows you to deduct both the depreciation and the financing costs that are part of each monthly payment. If you’re leasing a luxury automobile, the amount that you can write off may be limited.

Cons

No Ownership

The mileage restrictions of a lease can impede how much and how far you wish to drive. Moreover, drivers who would like to make modifications to their vehicles should understand that fees may apply. For example, there may be additional costs at the end of the lease due to the need to reverse any changes that they make.

Lack of Control

You can’t sell the car or trade it in to reduce the cost of your next vehicle. Plus, since you’ll start a new lease when one expires, you’ll always have monthly payments and an ongoing lack of control over certain aspects of a vehicle.

Fees and Other Costs

Fees in your lease contract apply to excess mileage, modifications to the car, and excess wear and tear. There’s also an early termination fee if you decide to end the contract early and an acquisition fee (also called a lease initiation fee).

Once the contract ends, you may have to pay a fee to cover what the dealer pays to clean and sell the car. Finally, unless the lease includes gap insurance, you may also owe costs related to accidents you may have had that your insurance doesn’t cover.

Ultimately, it’s more expensive to lease cars for the long term instead of buying one and using it for years.

If you decide that taking out a loan to buy a car is preferable to leasing a vehicle, then it’s worth using an auto loan calculator to determine what loan term and interest rate would best suit your needs.

Pros and Cons of Buying

When you buy a car, you can keep it for as long as you choose to. Usually, you’ll make a higher down payment and slightly higher monthly loan payments (if you finance your purchase) compared to lease payments for the same car.

However, there are ways to reduce these amounts—consider buying a less expensive new car, a certified pre-owned car, or a used car.

Perhaps you’ve saved and invested money with a car purchase in mind. If you can afford to pay the entire cost of the car in cash, all the better as far as the ultimate cost.

Monthly car loan payments are calculated based on the sale price, the interest rate, and the number of months it will take to repay the loan.

Pros

No Restrictions

Unlike leasing, you’re not obligated for fees related to mileage and wear and tear on the car. Since you own it, you pay for service and repairs on your own time line.

Total Control

You also have complete control over how you improve your car or, for instance, modify its appearance. If you financed its purchase, once that loan is paid off, you can keep it until it dies, trade it in, sell it outright, or give it to a family member. You get to decide.

Potential for Tax Deductions

If you use your car for business as well as personal reasons, the IRS allows you to deduct costs and depreciation related to that business use. You must keep careful records to support your filing, so be sure that you fully understand what’s involved.

Long-Term Cost

It’s cheaper overall to buy a car and hold onto it for as long as possible.

Cons

Rapid Depreciation

New cars can lose 15%–25% of their value in the first five years of ownership. If you consider your car an investment, then this is a disadvantage. However, if you are the type who buys and keeps a car for years, then it shouldn’t matter.

Driving Costs

According to a 2022 study by AAA, the cost to drive a new car for about 15,000 miles came to $10,728. Costs included fuel, insurance, and maintenance.

Leasing vs. Buying Summary

LeasingBuying
Pay to drive a car for a specific time frame; no ownershipOwn and drive for as long as desired
Lower or no down payment and monthly paymentsUsually higher down payment and slightly higher monthly payments
Get into a luxury car at less costHigher cost for more expensive cars
Get automotive advances with every new lease/new carRestricted to car’s technology until new purchase or upgrades you initiate
Turn in (or buy) car when lease is doneMust arrange trade-in or find buyer if you wish to sell
Restrictions on miles allowed and modifications to carNo mileage restrictions
Various fees can bump up cost at end of leaseNo special fees
All costs aren’t known until lease endsCosts are known/can be projected
Higher cost over long period of time and multiple leasesLower cost when bought and kept

What are the advantages of leasing?

Leasing allows a person to get a new car every few years. It can keep their payments relatively stable when leasing the same make and model of car over various leases. Leasing also frees the lessee from having to dispose of the car at the end of the lease term.

What are the disadvantages of leasing?

The main disadvantage of leasing a car is that you never own it. You don’t build equity in the vehicle as you make lease payments. Lease terms can be anywhere from two to five years. A lease can be ended early, though early termination typically involves a cancellation fee.

What’s the difference between buying and leasing a car?

When you buy a car, you either pay cash or finance the purchase with a car loan. You take title to the vehicle. If you finance the car, you build equity in the car over time.

When you lease a car, you make lease payments that allow you to drive the car but never take title to the vehicle or build equity. When the lease term is up, you return the car to the dealer.

The Bottom Line

Deciding between leasing and buying a car will come down to your lifestyle, driving needs, and financial situation.

Leasing can be attractive if you’re looking for lower monthly costs, want a new car with new car technology every few years, and don’t want to worry about certain tasks, such as selling your car. Leasing can also put you into a luxury model that otherwise might be out of reach.

Buying a car means you’ll either own it outright if you paid cash or build equity in it as you pay off a car loan. You’ll have total control over your expenses and can service or repair it according to your needs. You’ll have the freedom to drive as much as you like, modify your car, and dispose of it in on your terms.

In the long run, buying has proven to be a better financial decision.

Pros and Cons of Leasing or Buying a Car (2024)

FAQs

Pros and Cons of Leasing or Buying 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.

What are the pros and cons of leasing a car vs buying? ›

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.

What are pros and cons of buying a car? ›

Three Pros & Cons of Buying a New Car
  • Pro #1: Latest Technology and Safety Features. One of the biggest advantages of getting a brand-new car is having access to all the latest technology and safety features. ...
  • Pro #2: Peace of Mind. ...
  • Con #2: Monthly Payments. ...
  • Pro #3: Personalization. ...
  • Con #3: Insurance and Taxes.
Jun 8, 2023

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

Is leasing a vehicle a bad decision? ›

Leasing a car can be a good way to get into a new vehicle without a hefty car loan payment. But in the long run, it may make more financial sense to buy instead of lease. Understanding the numbers for each option can help you determine which option is a better fit for you.

What are pros and cons of leasing? ›

Leasing vs. Buying Summary
LeasingBuying
Various fees can bump up cost at end of leaseNo special fees
All costs aren't known until lease endsCosts are known/can be projected
Higher cost over long period of time and multiple leasesLower cost when bought and kept
6 more rows

What are 3 pros to leasing a vehicle? ›

What are the benefits of leasing a car?
  • Lower monthly payments. ...
  • Less cash required at drive off. ...
  • Lower repair costs. ...
  • You don't have to worry about reselling it. ...
  • You can get a new car every few years hassle-free. ...
  • More vehicles to choose from. ...
  • You may have the option to buy the car at the end of the lease.

What are 4 pros buying a car? ›

The Pros of Buying a New Car
  • Warranty. ...
  • Lower Loan Rates. ...
  • Less Need for Repairs. ...
  • Mint Condition. ...
  • Latest Features. ...
  • Depreciation. ...
  • Higher Insurance Premiums. ...
  • Higher Annual Registration.
Jan 20, 2022

Is it smarter to lease or buy a car? ›

You can opt for a shorter repayment term, which will reduce your overall interest charges but can result in higher monthly payments. Despite the drawbacks, buying is the better option for saving money. Unlike with leasing, financing a car eventually leads to ownership with no more monthly payments.

What are 3 advantages of a lease? ›

Pros of leasing a car
  • Lower monthly payments. A monthly lease payment may be less than a loan payment on the same car. ...
  • Fewer costly repairs. Generally, leased cars are newer and in better condition. ...
  • A safer vehicle. ...
  • Tax advantages. ...
  • Easy returns.

What are the disadvantages of a lease? ›

Advantages of leasing include lower monthly payments, no long-term commitments, and minimal maintenance costs. Disadvantages include never owning the car, charges for damage or exceeding mileage limits, and restrictive terms and conditions.

Does leasing hurt your credit? ›

Lease payments are reported to the major credit bureaus the same way finance payments are. On-time bill payments are one of the strongest factors influencing your credit score, so keeping up with your lease payments should have a positive effect.

Why you should buy a car and not lease? ›

You're focused on long-term value

Even better, once you pay off the loan, you can keep driving your car without worrying about monthly payments. If you're leasing, you may be paying less for the same car on a monthly basis, but you won't own it. Leasing to buy also doesn't guarantee a good deal.

Is it a good idea to lease a car in 2024? ›

Leasing in 2024 offers several advantages over buying: Lower Monthly Payments: Aggressive leasing deals can significantly reduce monthly payments, making it feasible for customers to opt for higher trim levels without stretching their budgets.

What credit score is needed to lease a car? ›

A credit score of 700 or above can get good car lease offers. Lenders also consider income and other factors. Bev O'Shea is a former NerdWallet authority on consumer credit, scams and identity theft.

Is leasing a car a better deal than buying? ›

Leasing a vehicle

Your monthly payments may be lower than buying, but the payments are going towards depreciation of the vehicle during the lease term plus rental charges. You may be responsible for early termination charges if you end the lease early. These fees can be very expensive.

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 good time to lease a car 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.

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