Is it better to lease or buy a car?
It depends on your budget, as well as your needs. Leasing a new car may result in a lower monthly payment than buying a new car, and any maintenance the vehicle needs may be covered by the dealership. On the other hand, buying a car makes it wholly your own. Plus, your monthly payments will eventually end once you've paid off your loan.
Comparing the cost of leasing vs. buying
When you buy a new car, the overall cost is much higher than leasing. If you finance the purchase, you typically need a down payment that ranges from 10 to 20 percent of the car's value, and then you'll need to make a monthly payment. According to Edmunds, the average monthly payment for new vehicles hit an all-time high of $569 in 2020.
Leasing a car can have high upfront costs too, but your monthly payment may be less than what you'd pay if you were financing a new car at full price. A lease requires a down payment as well as a security deposit. Some leases include other fees like bank fees, and you might also be required to pay sales tax on the down payment. Some states will require you to pay registration fees as well.
Our leasing vs. buying car calculator can help you easily compare the costs of both options.
Pro tip:
Leasing companies may require more insurance coverages or higher limits than lenders, so you may pay more to insure a leased vehicle than a financed one. You might also face penalties if you return the leased vehicle in poor condition, such as chipped paint, dents, rips in the seat fabric, and other wear and tear.
Other things to consider when leasing or buying a car
A leased vehicle has mileage restrictions
Leasing companies place restrictions on how many miles you can drive a vehicle per year. The standard mileage is typically around 12,000 miles per year, depending on the leasing company. If you go over the annual mileage limit, you'll have to pay a charge for every mile driven after that. You may also have to pay penalty fees after exceeding the maximum annual mileage. If you know you'll drive more than the annual mileage limit in a year you might consider buying a car instead.
You may not have to pay for basic maintenance with a leased vehicle
In many cases, a car you lease might still be under warranty, or the leasing company might provide some maintenance coverage. For example, you may not be responsible for standard maintenance like oil changes when you lease a vehicle. This can save you a lot of money on maintenance costs.
Pro tip:
While maintenance and repairs may be easier with a leased vehicle, you can't modify the vehicle in any way. If you want to install your own sound system, aftermarket parts, and other custom equipment, you'll need to buy a car instead.
Owned vehicles can be easily used for commercial or rideshare work
If you rely on a vehicle for work, buying a car might be your best option. It gives you more control over the vehicle and has no mileage restrictions. In contrast, leasing companies may restrict commercial or rideshare work like Uber, Lyft, or on-demand delivery services. Plus, the added miles you're driving could easily send you over the annual mileage limit. Learn how rideshare insurance works.
Is leasing or buying a car better?
There are benefits to both leasing and buying a car. If you want to trade in your vehicle for a newer model every few years and you don't drive long distances, then leasing can be a viable option. However, if you drive often, want to customize your vehicle, or you want more control over the amount of insurance you carry, buying a car may be the better choice.
Deciding whether to lease or buy a car isn't always easy. Ask yourself how far you regularly drive, how often you want to upgrade to a new vehicle, and whether the insurance and monthly payments fit your budget. Ultimately, it's a question of renting versus ownership. At the end of a lease, you can trade your keys in for a new set. If you own a vehicle, it's yours to drive for years after you pay it off.
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