Buying vs. Leasing

Buying vs. Leasing a Car

Understanding the differences between buying and leasing is essential for making an informed vehicle purchasing decision that suits your finances, lifestyle, driving habits, and preferences.

Below, we compare the pros and cons of buying and leasing, the economics of each, and why you might choose one over the other.

BUYING

Who Owns It

When you buy a car, whether with cash or through financing, it becomes yours. If you finance, you must meet the lender's requirements, such as a down payment and timely monthly payments, or risk repossession.

Most buyers finance their vehicles through dealerships, banks, credit unions, or private lenders, paying off the vehicle's value plus interest over an agreed period, usually three to six years. Lenders consider your income, credit score, and the vehicle's cost to set loan terms and interest rates. After completing the paperwork, the vehicle is yours to use as you wish.

Upfront Costs

When financing a car, a down payment is typically required by the lender, usually ranging from 10% to 20% of the vehicle's MSRP. This reduces your monthly payment. You can also trade in another vehicle and use its equity toward your down payment. The down payment amount depends on the lender's requirements and your credit score.

Future Value

New cars depreciate over time, losing nearly 20% of their value in the first year. Depreciation varies based on market value, make, model, and year. However, buying a car can build equity if your payments exceed the rate of depreciation. This equity can help finance your next vehicle. The future value of your car depends on how well you maintain it, so regular scheduled maintenance by a factory-authorized facility is essential.

End of Payments

Once you've paid off your loan, the vehicle is entirely yours. The lending institution will send you a lien release as proof of ownership.

LEASING

Who Owns It

When you lease a car, you pay for its use, but the finance institution owns it. This usually results in lower monthly payments compared to buying. Leasing also protects you from unexpected drops in the vehicle's value due to unforeseen circumstances, such as recalls.

Upfront Costs

Leases typically require minimal upfront costs, often just the first month's payment, a security deposit, the acquisition fee, and other fees and taxes. You can choose to pay more upfront to lower your monthly payments.

Future Value

In most leases, you don't own the vehicle, so you're not responsible for selling it. The finance institution handles that. However, leases often have mileage limits and wear and tear guidelines, which, if exceeded, can incur additional costs. Lease terms usually range from two to three years, appealing to those who prefer driving new cars frequently. Leasing can also allow you to drive a higher-value car for less money.

End of Payments

At the end of the lease term, most people return the vehicle, but you can also purchase it or trade it in before the lease ends. Discuss these options with us before signing any paperwork to ensure your lease meets your needs.

Best Cars to Lease

The best cars to lease are those that retain their value well. Since they depreciate less, your payments are lower. Check lease ratings to see which cars hold their value best.