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When buying a car, there’s one big question: Does it make more sense to buy or lease?
The answer doesn’t make it any easier: There are pros and cons to both. But weighing both sides doesn’t have to feel like homework – that’s why we broke down the important factors for you — so you can feel more confident, whichever route you take! 🚘
Lease vs. buy a car: What's the difference?
Before you settle the lease vs. buy debate, it helps to understand how each option works.
Leasing a car is similar to leasing an apartment
You sign a contract that gives you the right to use the car for a set period of time. Each month, you make a lease payment according to the terms of your contract. You may also have to pay some upfront costs, like a security deposit or down payment, and registration fees.
The terms of your vehicle lease may spell out the number of miles you can drive per year. For example, you may be limited to driving 12,000 or 15,000 miles. Once your lease ends, you may have to choose a next step:
- Extend the lease and keep the vehicle
- Return the vehicle and lease a different vehicle, or
- Purchase the vehicle at a price you and the dealer agree on
If you exceed mileage limits or incur excessive wear and tear, you may have to pay fees at lease closing. Ending a lease early may also result in having to pay a penalty fee.
Buying a car, on the other hand, is like buying a home
You make monthly payments for a set period of time according to your loan agreement. Once those payments are fulfilled, you assume ownership of the vehicle outright.
Like leasing, you may need to make a down payment or pay upfront costs, including registration, taxes, and fees. But there are no mileage limits or restrictions regarding wear and tear with a car loan.
Here’s a handy table to highlight some differences between leasing vs. buying a car:
What are the pros and cons of leasing a car vs. buying?
The decision to lease vs. buy a car may depend on what you need from a vehicle and the details of your financial situation. Let’s take a closer look at the advantages and potential downsides of each:
|Pros of leasing a car||Cons of leasing a car|
|Pros of buying a car||Cons of buying a car|
Is it a waste of money to lease a car?
Leasing a car means you pay money for the ability to drive a newer vehicle each month. Again, it’s similar to renting an apartment vs. owning a home. At the end of the lease, you won’t have ownership over the vehicle unless you decide to buy it.
Using a car lease calculator can help estimate the costs of leasing. You can then use the numbers as a guide to compare options from a financial perspective.
Example: Lease a $35,000 car
- Purchase price: $35,000
- Down payment: $2,000
- Registration fee: $500
- Monthly payment: $488 (12,000 mile / 3-year lease)
- Total cost for 3 years of leasing: $17,568
Example: Buy a $35,000 car
- Down payment: $4,000
- Registration fee: $500
- 60-month loan: 4.4%
- Monthly payment: $644
- Total cost to own the car: $34,606
How to buy a car if you prefer it to leasing
If you’ve decided that you’d rather own a car instead of leasing, having a checklist like this can help make for a smoother buying process.
- Check your credit: Your credit score can tell you how likely you are to get a car loan and what interest rates you’ll pay.
- Set your car buying budget: First, you need to figure out how much car you can afford if you’re getting a loan. A car loan calculator can help with this step.
- Save your down payment: Putting money down can reduce the amount you need to finance when buying a car. Consider opening a dedicated savings account to hold down payment funds and automate deposits each payday.
- Compare car loan options: When buying a car, take time to shop around and compare loan terms. Check the interest rates and fees different lenders charge.
- Get pre-approved: Getting pre-approved for a car loan can give you a bargaining chip when negotiating with a dealer. Just keep in mind that this may involve a hard credit check.
- Negotiate the purchase: If you have financing in place the final step is negotiating the terms of your purchase. This can include negotiating the price and any add-ons the dealer’s trying to include.
The Bottom Line: Buying is (almost) always better
There are benefits to both options but — unless you just enjoy driving a new car every few years — buying a car can make more financial sense most of the time. When deciding which car to buy, make sure to review your overall financial picture to figure out where vehicle ownership fits in.