Buying vs. Leasing

Read time: 6 minutes

Whether it was from your favorite financial advice column, the news, or that one uncle that talks about the stock market too much, you’ve probably heard that buying a car is better than leasing. You may believe it, too, and we don’t blame you. For years, buying has been labeled as "the better option." 

Is it always, though?

With all the variables involved in a transaction like this, claiming that buying is always best seems a bit short-sighted. Depending on your needs, objectives, and your approach to car-shopping, the reality is that one isn’t entirely better than the other.

Let’s break it down.

When you car shop, you’re thinking through things like:

• Your budget for monthly payments.
• Your budget for a down payment.
• How you feel about owning a car as an asset.
• Your tolerance for financing v. buying outright.
• Whether you want a new or used car.
• How much you drive.

Your answers to these questions can help point you towards your best option. For example, if you have a low budget for a down payment and for monthly payments, leasing might be the way to go. We won’t get specific about all that yet, though.

The Pros and Cons List

First, let’s take a quick side-by-side look at buying v. leasing.

Simple enough, right?

Not necessarily. While we love a good pros and cons list, it can’t tell the whole story. When you buy or lease, you should approach each process differently because they are very different. We promised to get specific about all the variables to take into consideration here — so what exactly does that look like?

Approaching Leasing vs. Buying with Financial Goals in Mind 

Ultimately, it depends on your specific situation and needs. Instead of just comparing buying to leasing, let’s now take a look at some common financial goals and how you can use buying or leasing to make them happen.

Quick side note: In this article, we're comparing the costs of buying v. leasing a new car. That's a luxury that not everyone can afford. Buying a used car will generally be the cheapest option in terms of up-front costs, and can especially save you from fees and closing costs (if you're not buying directly from a dealership).

Keep in mind, though, that used-car prices have risen considerably. So, while in the past it may have been worth it to accept the additional costs of a used car (like more maintenance down the line) because the car itself was so cheap, these additional costs may no longer be worth it to you.

"My main goal is low monthly payments."

Buying and financing gives you the most options for customizing your monthly payment, though it does cost more per transaction than leasing. If you have the cash available, making a large down payment is the easiest way to lower your monthly bill. Extending your loan term will also bring it down, but keep in mind that a longer loan term can lead to you paying more money in the long run.

If you choose to lease, you may be able to extend your lease term (beyond the standard 3-year term) for a lower monthly payment. You could also plan on buying out and financing the leased car after your term ends to lock in a lower monthly payment while keeping the vehicle.

"I have less money for a down payment but I'm more flexible in terms of monthly payments." 

Leasing may be right for you. Let’s say your monthly budget for car payments is $400, and you find a car that leases for $400/month. You could choose to buy and finance the same model with that same monthly budget, but if you can’t make a big down payment, staying within your monthly limits would cost you more in the long run than leasing.

When you’re buying a car, achieving low monthly payments + a small down payment usually means you’ll be taking a very long loan term with a higher APR, and the interest you pay can really add up over time.

If you have these constraints and play your cards right, leasing can really work for you. For example, if you can’t make a big down payment and really need to stretch your monthly payments out, some lenders offer 7-year loan terms for purchasing. Standard car lease terms are 3 years. Depending on your interest rate, out-of-pocket maintenance costs, and closing costs, it may be possible to lease a brand new car twice in the time you could pay off that 7-year loan on one car.

Alternatively, leasing a car, buying it out, and then financing the remaining payments could be a great choice for you. This gives you the benefits of leasing in the short run and the benefits of ownership in the long run.

"I have a lot of cash on hand." 

If you’re looking to get a car and keep it around long-term, buying a car outright will generally save you the most money overall. If you’re trying to keep some of that cash in the reserves, a large down payment + a lower-APR, shorter loan term with low monthly payments can be a great alternative to buying outright.

Making the Decision while Considering Other Factors 

Know Your Driving Habits

When deciding whether to lease or buy, think about how much you drive. If you're clocking a lot of miles, leasing might not be your best bet because of mileage limits and those pesky excess mileage fees.

But if your commute is predictable and you’re cruising under 15,000 miles a year, leasing could save you some cash. For those who like to drive without limits, owning your car might give you the freedom and flexibility you need.

The Depreciation Game

Buying a car? Get ready for depreciation — the moment you drive off the lot, your shiny new car starts losing value. This drop in value affects your resale price and overall investment.

With leasing, you dodge the depreciation bullet since you’re essentially renting the car for a few years and returning it before it gets too old. But if you’re in it for the long haul, depreciation might not matter as much, making buying a more appealing choice.

Maintenance and Repairs: Who's Got Your Back?

Maintenance and repairs can be a deal-breaker. Lease a car, and most of your maintenance is covered under warranty, sparing you from surprise expenses. But watch out — end-of-lease charges for excessive wear and tear can sneak up on you. Own your car, and you’re the boss of all repairs and upkeep, but you get to choose your mechanic and ensure top-notch service.

Flexibility is Key

Love the idea of driving a new car every few years? Leasing offers that sweet flexibility. When your lease is up, just hand back the keys and lease the latest model with all the new bells and whistles. It’s perfect for those who want to stay on the cutting edge without a long-term commitment.

On the flip side, buying means you’re in it for the long run, which might not be ideal if you like switching up your ride frequently.

Tax Perks and Incentives

Let’s talk taxes. In some states, leasing can offer tax benefits because you only pay sales tax on the monthly payments, not the full purchase price. Plus, businesses might score some tax write-offs with leasing. Do a little research on the tax perks in your state and chat with a financial advisor to see how these incentives could sway your decision.

The Bottom Line

1) We all know buying a new car is expensive. That’s not news.

2) Everyone has opinions about what’s best for you, but you’re the one with the answers.

You know whether you’re short on cash or if you can afford a big down payment; you know if you just need a commuter car or if you’re planning a month-long road trip next summer; you know your debt tolerance, your monthly budget, and how much worse for the wear your car may look when you’re done with it.

3) Buying and leasing aren’t mutually exclusive – if you’re set on owning but can only afford a lease right now, a lease buyout could be the way to go (and if you’re looking for someone who can help you with that, look no further).

You know your unique situation the best, and you have options. Need help exploring those options? Use this as a guide, do a little extra research, and if you find yourself needing to end your lease — you know where you find us.

Ready now? Enter your license plate number or VIN below, or give us a call at (888) 307-5197.