Buy a Car vs. Lease a Car: What is right for you?

By Rebecca Lake
January 6, 2021
Chime is a financial technology company, not a bank. Banking services provided by The Bancorp Bank or Stride Bank, N.A.; Members FDIC

Getting a new car can be really exciting! But 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! 🚘 

  1. Lease vs. Buy a Car: What's the Difference?
  2. What are the Pros and Cons of Leasing a Car vs. Buying?
  3. Is It a Waste of Money to Lease a Car?
  4. How to Buy a Car If You Prefer It to Leasing
  5. The Bottom Line: Buying Is (Almost) Always Better

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:

LeasingBuying
Who Owns ItThe leasing company or dealership, unless you exercise your option to buy at the end of the lease term.Assuming you satisfy the terms of your loan agreement, you’d own the vehicle once it’s paid off.
Monthly PaymentTypically less than auto loan payments.Typically higher than leasing payments.
Upfront CostsMay include down payment, security deposit, registration fees, taxes and other costs.May include down payment costs, registration fees, taxes.
Builds CreditYes, if the leasing company reports lease payments to the credit bureaus.Yes, if the financing company reports loan payments to the credit bureaus.
Vehicle UseSubject to mileage caps and restrictions regarding wear and tear.Since you’re buying the vehicle with the intent to own it, no restrictions on mileage or wear and tear apply.

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 carCons of leasing a car
  • Monthly payments may be lower when you lease a vehicle versus buying
  • You may pay fewer upfront costs to lease vs. buy a car
  • Leasing allows you to drive a new car every few years
  • Your lease may include warranty protection that covers maintenance costs
  • Mileage restrictions limit the number of miles you can drive each year
  • Exceeding mileage limits may trigger a penalty fee
  • You may have to pay a fee to end a lease early
  • Fees can also apply for excessive wear and tear

Pros of buying a carCons of buying a car 
  • You own the vehicle at the end of the loan term
  • There are no restrictions on the number of miles you can drive
  • You could sell the vehicle later or use it as a trade-in
  • Buying a car gives you the freedom to customize it any way you’d like
  • If you don’t have cash to buy, you may need financing to make the purchase
  • Your monthly payments may be higher compared to leasing a car
  • Depreciation can eat away at your vehicle’s value
  • You may need a bigger down payment

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. 

Pro tip: Before finalizing a vehicle purchase, read the fine print on the purchase agreement and the loan. Be sure you understand what's expected of you in terms of payment due dates and how much you're paying to buy the car. 

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. 


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