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Buying vs. Leasing

Whether you’ve heard it 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 ‘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, 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. First, let’s take a quick side-by-side look at buying v. leasing.

Buying: Pros It’s yours;  No wear-and-tear mileage fees; Don’t have to give it back after your term ends; On a set path to eventually own the asset (if you financed) or start by owning outright.  Cons More maintenance costs fall on you;  If you finance, could cost you in high APR Cost of depreciation falls on you; More expensive per transaction than leasing.   Leasing: Pros Avoiding depreciation “costs”;  Avoiding maintenance costs; May have better rates (compared to buying & financing); Get a vehicle you want with smaller/no down payment. Cons Mileage limits; Potential wear-and-tear fees at end of lease; More frequent dealership transactions & more fees for you; You may not have the option to own the car at the end of the lease.

Simple enough, right?

Not necessarily. While we love a good pros and cons list, it can’t tell the whole story. Buying and leasing are two very different things, and should be approached differently as well. We promised to get specific about all the variables to take into consideration here – so what exactly does that look like?

Well, 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.

Picture of a girl holding her hands up in a shrug and looking confused. Text says "So what?"

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


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