Leasing vs. Buying a Car: Pros, Cons and Key Differences
Written by
Dawn Allcot
Edited by
Elizabeth Constantineau
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Deciding between leasing vs. buying a car is an important financial decision that can affect the type of car you can afford and your budget for the next three to seven years. It may also influence how far and how often you can drive, since leasing often comes with mileage limits and potential overage fees.
If you typically drive fewer than 10,000 to 12,000 miles per year, enjoy driving a new car every few years and prefer lower monthly payments, a lease could be a good fit. But if you’d rather drive without mileage limits and plan to keep the car well beyond the loan term, buying may be the better choice.
Leasing vs. Buying a Car: Key Differences
Leasing a Car
When you lease a car, you’re essentially renting it for a set period — usually two to four years. You’ll make monthly payments to drive the vehicle but you won’t own it.
At the end of your lease, you typically have three options:
- Trade in the vehicle for another lease or purchase.
- Buy the car outright with a one-time payment.
- Finance the remaining value and transition to ownership through monthly payments.
Things To Keep In Mind With Leasing
- Mileage limits apply and exceeding them can lead to fees.
- Any changes you make to a leased vehicle must reversed at lease-end. That means you can add new car mats or a phone charger but not make permanent changes.
- Wear-and-tear charges may apply if the car is returned with noticeable damage.
Buying a Car
Buying a car means you’re working towards full ownership — either by paying in full upfront or through financing. Once the loan is paid off, the car is yours.
Things To Keep In Mind With Buying
- No mileage restrictions — drive as much as you want.
- You can modify the car in any way you’d like. This includes cosmetic changes, such as installing a different grill, upgrading the sound system or adding custom wheels.
- No wear-and-tear penalties — cosmetic damage is your choice to fix or ignore.
- You can sell the car, keep driving it or trade it in for a newer model, using equity from the vehicle to help cover your next car purchase.
Pros and Cons of Leasing a Car
To help in your decision, here are some benefits and drawbacks of leasing a car.
Benefits of Leasing a Car
- Lower monthly payment
- Enjoy a new car every three years, typically before most components start to break or wear out
- Spend less on repairs
Drawbacks of Leasing a Car
- Can’t make significant modifications
- Mileage limits
- Might have to pay for damage or wear-and-tear
- Nothing to show at the end of the lease — you don’t own the car
- Possible lease termination fees if you want to trade in the car early
Pros and Cons of Buying a Car
Is buying a car the right choice for you? Here’s a look at the benefits and drawbacks.
Benefits of Buying a Car
- You gain equity in the vehicle with every loan payment
- No mileage limits
- You own the vehicle at the end of the loan term
- Modify the vehicle as you’d like
Drawbacks of Buying a Car
- Long-term maintenance and repair costs
- Higher monthly payment
- New cars depreciate in value when you drive them off the lot
- May not be able to afford to buy a new car until your vehicle is paid off
Leasing vs. Buying a Car: Side-by-Side Comparison
Wondering if leasing vs. buying a car is the better fit for your lifestyle and budget? This comparison can help you decide.
| Factor | Leasing | Buying |
|---|---|---|
| Lower monthly payments | Yes | No |
| Charges for wear and tear | Yes | No |
| Limits on mileage | Yes | No |
| Can modify vehicle | No | Yes |
| New car every 2 to 4 years | Yes | No |
| Earn equity in the vehicle | No | Maybe |
When Leasing Might Be a Better Option
Leasing may be a better option in the following situations:
- If you are on a budget and can’t afford a larger monthly payment that comes with a car loan.
- If you like driving a new car every few years.
Keep In Mind
Leases typically come with 10,000 to 15,000 miles per year in driving limits. Exceeding those can lead to extra fees.
If you drive less, want lower monthly payments and prefer to return the car after a few years without worrying about resale value, leasing could be a smart fit.
When Buying Might Be a Better Option
Buying a car makes more sense in these situations:
- If you’re the type of driver who keeps your car for 10 years or 100,000 miles or more.
- If you consistently drive more than 12,000 or 15,000 miles per year.
Good To Know
If your goal is to build equity and eventually own the car outright, buying is likely the better choice. It also gives you the freedom to customize or modify your vehicle however you’d like — something you can’t do with a lease.
Final Thoughts
Depending on your priorities and your budget, leasing and buying a car each have benefits and drawbacks.
Before you make the decision, consider how long you plan to keep the car, how much you drive and your total budget. Compare offers from dealerships and lenders. You might find you can get a better deal on your new car loan through a third-party lender.
FAQ
Here are the answers to some of the most frequently asked questions about leasing vs. buying a car.- Is leasing cheaper than buying a car?
- Leasing a car may have lower monthly payments, since you aren't paying interest. However, you still need to pay acquisition fees and may have to make a down payment.
- At the end of the lease, you haven't built up any equity and must return the car. In this way, a lease can end up costing more than financing a vehicle purchase.
- What are the disadvantages of leasing a car?
- When you lease a car, you have mileage limits and might face wear-and-tear charges for any damage to the vehicle. You can't make any major changes to the car while you're leasing it, and if you change your mind, you might face early termination fees.
- Can you buy a leased car at the end of the lease?
- At the end of a lease, you can purchase the leased car outright for what is called the "buyout price" or take out a car loan to finance that cost.
- What's better for insurance: leasing or buying?
- Insurance rates are largely the same for a leased car or purchased car. However, with a leased car, you must maintain full coverage for as long as you have the car.
- When you purchase a car, you can drop down to a minimal liability policy that meets requirements in your state once you've paid off your auto loan.
- How many miles can you drive with a leased car?
- Most leased cars have mileage limits of 10,000 to 15,000 per year.
- Is it harder to get approved for a lease or a loan?
- Credit and income requirements are similar for a car lease or a car loan. Most lenders look for a credit score of at least 670 to qualify. Those with a credit score of 700 or more can secure the best rates.
- Should I lease if I don't have a down payment?
- Car buyers can often find lease deals requiring no money down. However, your lease payments may be higher if you don't provide a down payment.
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- Capital One. 2022. "Can You Modify a Leased Car?"
