Cars are so expensive, prices can be out of reach for many shoppers. Even with long-term auto loans, it can be tough to afford a new car. Fortunately, car leasing allows consumers to get behind the wheel of a new vehicle with a monthly payment that’s usually lower than it would be if you purchased it.
Leasing a new vehicle every two or three years would be more expensive than buying one and keeping it after the final payment. Other consumers are quite content to lease a vehicle they could never afford to buy, even if it doesn't necessarily save them money.
There are several distinct advantages and disadvantages to leasing versus buying.
Wondering whether to buy or lease your next car? Both options have pros and cons — and some are more obvious than others. Let’s take a look at the top differences between buying vs leasing and their pros and cons.
Pros of leasing a car
Leases remain a popular option because they allow you to drive a nicer, newer car that might otherwise be outside your price range.
- The latest and greatest for less: Leases let you drive nicer vehicles that might otherwise be out of your price range.
- Warranty coverage: You can only lease new vehicles, which tend to have factory warranties of at least three years/36,000 miles. That means you’re off the hook for defects or part failures (you’re still liable for damage or misuse, however).
- Complimentary maintenance: Some dealers also include complimentary maintenance in their lease agreements (oil changes, tire rotations, etc.), which saves you money.
- Easy breakup: Leasing saves you the hassle of selling a car. Once your lease is up, you can bring it back to the dealer, pay any outstanding fees or wear-and-tear charges and walk away.
- New car every few years: Leasing lets you trade up for a new model every few years without significant changes to your monthly payments.
Cons of leasing a car
Although many drivers choose to lease their cars, leasing isn’t for everyone. This option comes with mileage and customization restrictions, and it doesn’t help you build equity.
- Mileage limits: Most lease agreements have annual mileage limits (usually around 12,000) with overage charges of about 25 cents per mile, so leasing may not be the move if you have a lengthy commute or make frequent road trips.
- No equity: Although leasing is generally cheaper than financing, it doesn’t build equity — so you can never sell your car for a cash payout.
- Limited customization options: Because leases are glorified rentals, your options for customizing your car (tinting, performance upgrades, etc.) are extremely limited. You’ll need approval from your lessor for any modifications, and even if you’re approved, you’ll typically need to remove all non-factory parts and modifications before your lease ends.
- Wear-and-tear charges: Dealers generally won’t charge you for “normal” wear and tear like small scuffs, but you’ll have to fix dings, dents, scratches, missing parts and poor-quality repairs on your dime. In some cases, excessive wear-and-tear charges can cost thousands of dollars.
- Early termination fees: If you decide you no longer need (or want) your leased vehicle, you may be able to cancel your lease — but not without paying $2,000 or more in early termination fees.
Pros of buying a car
All things considered, buying is the move if you plan to own your car for a while, beat it up or drive farther than 15,000 miles each year. You may also like the feeling of wrapping your hands around the steering wheel knowing it’s entirely yours.
- Sense of ownership: Financing a vehicle and working toward 100% equity can offer a sense of pride and progress.
- Building equity: Unlike with leasing, each monthly payment on an auto loan builds your ownership in the vehicle, so you can sell, pay off your loan and — in some cases — even profit.
- No mileage limits: It’s your car, so nobody cares how far you drive it each year. Just keep in mind that both factory and extended warranties expire after a certain mileage number.
- Small scratches and dings aren’t a problem: While leased vehicles need to be kept in resale condition, a vehicle you own or finance can be scratched and dinged up without immediate consequence (this is why dog owners may want to rethink if they’re considering a lease).
- Cheaper over the long term: You’ll pay off your auto loan eventually, meaning you’ll take 100% ownership and only have to pay for insurance and maintenance. Plus, once you fully own your car, you’ll have the option to downgrade your insurance from full coverage (required by most lease/finance agreements) to liability-only, which can save you $1,000 or more annually on premiums.
Cons of buying a car
Owning a car is great, but it’s not cheap, especially if it’s new. If you want the newest car available when you upgrade, buying might not make sense.
- Depreciation: New vehicles tend to depreciate 15% to 40% within months, meaning you risk being underwater on your auto loan for the first few years. Gap insurance can help in the event your vehicle is totaled, but if you simply need to sell it, you may find yourself still owing money on a car you don’t own.
- May limit you to used car: Purchasing or financing a used vehicle can lower your monthly payments and save you from a year of depreciation, but a used car may not have the cutting-edge features and gadgets you want.
- Warranty coverage: If you buy a used car that’s at least 5 years old, it is likely out of factory warranty, meaning you’ll be on the hook for unexpected repairs. That’s why we strongly recommend financing a historically reliable vehicle — or insuring an unreliable vehicle with an extended warranty.
There's no easy answer to the question of whether it is better to buy or lease a new car. Each method has its pros and cons. While you can typically get lower monthly payments with a lease, you never really own the vehicle. There’s no one-size-fits-all answer to the question of whether you should buy or lease your next car. Which option you choose depends on your current financial picture, automotive needs, and future plans.
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