Leasing vs. Buying a Car: What’s Better For Fou
The prices of new cars are always high, which can cause confusion between leasing vs buying a car. So one’s decision depends on the budget, long-term financial goals, lifestyle, and credit score.
Leasing is the right option for you if you want to pay lower monthly payments, enjoy driving, and are not interested in building equity. Buying might be the right choice for you if you want to own your car after the payment of loan.
In this article, we discussed each of the two to understand which one is the right choice for you according to your preferences and needs.
Lease Vs Buy a Car: How to Decide
| Leasing might be best if | Buying might be best if |
| You want to pay a lower monthly payment | You want to pay a lower overall cost for the vehicle |
| You want to pay a smaller down payment | You want to own the car after the loan payment |
| You do not want to pay mileage and wear and tear charges | You have unlimited miles to cover every year |
| If you want new cars | If you want new or used cars |
Leasing vs buying a car is a valid option to get a new car. Leasing has more restrictions than buying a car, such as how many miles you can drive. Buying is a expensive than leasing a car if you want to own a new and luxury car. Your credit score is also an important factor; if you have a lower credit score, you will pay a higher monthly payment or interest rate.
💡 Want to crunch the numbers for yourself? Try our easy-to-use Car Lease vs. Loan Calculator to see which option actually fits your budget best.
Pros and Cons of Leasing a Car
In leasing, you pay for the fixed time to drive the car, for three to four years. You can also choose a short-term lease or finance through the dealer. You will also pay some other fees, including acquisition fee, title fee, taxes, licensing fee, and drive-off fee, which add some extra thousands of dollars to your leasing budget. You can also pay for the extra miles you cover during the lease term. During the lease time, you also pay for the wear and tear of the car.
| Benefits of Leasing | Drawbacks of leasing |
| You can pay less monthly cost than buying a car. | You can’t customize your vehicle according to preference or needs. You must return the car in the same condition you leased it. |
| If you find a lease offer, you can drive the car for less down payment. | You will never own the vehicle after the payment of the lease. |
| Depreciation and trade-in value are not included in the lease. | Leasing a car has restrictions on mileage, ranging from 12000 to 15000. |
| You have a warranty on your car for three years. | Transfer of lease is an easier process than terminating the lease early. |
Pros and Cons of Buying a Car
Own the car after the full payment of the loan each month, you build equity after the monthly payment. Buying a car allows you to customize your car and gives you control to use it according to your will. You will monthly payment and a high upfront cost as you own the car in the end. Buying a car is profitable in the long run; one day payment will be done, but if you lease the car, you will have to pay the amount always.
| Benefits of Buying | Drawbacks of Buying |
| You have ownership of the car after the full payment of the loan. | Monthly car loan payments are higher as compared to lease payments. |
| No mileage restrictions on the car, and drive the car as much as you want. | Larger down payments are required for the purchase of a car, such as 20% of the purchase price. |
| Sell your car or trade it for the new car model. | Due to depreciation car loses 20% in the first year of purchase. |
| Customize your car and make changes. | Regular maintenance and repair require costs, and you have to pay for them. |
How Car Loans and Leases Differ
| Buying | Leasing | |
| Ownership | As you buy the vehicle, and have ownership after full payment. | You use the car during the lease time and don’t own it until you buy it. |
| UpFront Cost | This includes taxes, registration, cash fee, down payment, and some other fees. | This includes acquisition fee, taxes, registration, first month payment, and other fees. |
| Monthly Payments | You have to pay the entire cost of the vehicle, and the loan payments are higher than the lease. | Lease payments are less than the loan payments. |
| Early Termination | Trade in for a new car model or sell it. | Early termination is costly, whereas lease transfer is less expensive. |
| Vehicle return | You can sell your car or give it to a relative. | Return the car at the end of the lease. |
| Future Value | The car lost 20% value in the first year. But your cash value of the car. | The future value of a leased car does not affect you. |
| Mileage | You enjoy unlimited mileage. | You have a limited number of miles, and you pay extra charges for extra miles. |
| Excessive Wear and Tear | Wear and tear can reduce your resale value or trade-in value. You don’t worry about wear and tear. | You will have to pay extra charges for wear and tear. |
| End of Term | At the end of the loan term, you own the car and build equity. | You can buy another lease or finance the car when your first lease ends. |
| Customizing | As you own the car, you can modify your car. | You can’t customize the car and return the car in its original condition. |
For EVs, Leasing Could Be a Better Deal
If you lease an electric car rather than buy it, you can qualify for a $7500 tax credit. In the EV market, which is changing, leasing offers stability. Leases can qualify for the tax credit without meeting any requirements. If the price of electric cars drops in the market, then it does not affect you because you lease it for three to four years. You don’t get stuck in the previous model or worried about charging or battery technology, as things are evolving rapidly.
Is It Cheaper to Lease or Buy a Car?
Leasing a car is cheaper than buying a car because of its lower monthly payments, down payments, and lower maintenance costs. Leasing is a good option for expensive cars, as mostly these cars are leased. Most of the electric cars are leased at 46%, and some other luxury cars like BMW, Mercedes-Benz, Porsche, Audi, and Volvo are leased at higher than 50%.
But in the long run, you save more if you buy a car, and you will own the car as you pay the loan. You do not pay a monthly payment after paying the loan. Leasing vs buying a car offers several options to get a new or used car.
