Leasing vs. Buying a Car: Should You Lease a Car or Get a Loan?

A car is likely one of the most expensive acquisitions you will ever make. Luckily, there are different ways to get you behind the wheel of a vehicle suited to all budgets. One of the major decisions to make is that of whether to lease vs. buy a car.

Many consider the pros and cons of leasing a car instead of buying one outright. Alongside the possible tax advantages, you can often drive vehicles that may be more expensive than you can afford to purchase. Auto leasing is big business, and it is estimated that up to 25% (or 72 million vehicles in the US are leased). This amount is expected to increase even more throughout the 2020s.

On the other hand, you have no restrictions on usage or mileage when buying a car. Plus, it’s cheaper in the long run. Both options have advantages and disadvantages, and our guide will help you understand the right choice for you– whether to lease or buy vehicles.

The average cost of leasing vs buying a car

Leasing vs. Buying a Car: The Major Differences

	Leasing	Buying
Up-front costs	Some leasing companies require an upfront deposit, down payments, or acquisition fees.	Costs can range from the cash price in full to a down payment.
Monthly payments	Lease payments are typically lower than loan payments as you’re paying off the vehicle’s depreciation period over a fixed term, not for the entire purchase price of the car.	Loan payments are higher than lease payments as you are paying for the entire cost of the car.
Maintenance	Lease companies will require you to maintain the vehicle’s upkeep to a high standard.	There are no requirements to keep the car to a specific standard, but poor maintenance will affect resale value.
Wear and tear	Wear and tear over or above expectations will incur charges stipulated in your lease agreement.	Wear and tear will damage the resale value of your vehicle, but unlike leasing, there are no financial penalties, even if the car purchase was loan financed.
Use/mileage	Most lease companies restrict the number of miles you can drive in a year. Restrictions vary, so check with your lease company. Exceeding the mileage limit will incur extra charges.	There are no restrictions on mileage or use, but excessive mileage will affect the vehicle’s resale value.
Customization	Any modifications made will need to be removed on the return of the vehicle. Any permanent damage resulting from customization will incur a penalty for the value of the repair.	No restrictions on customizations that can be performed on the car.
Ownership	You do not own the vehicle when you enter into a lease agreement. At the end of the lease term, you may have the option to buy the car, but if you do not take up this option, the vehicle must be returned.	When you buy the vehicle, ownership is transferred to you. You can keep the car for as long or as short as you want.
End of term	You have to return the car to the leasing company unless you decide to pick up the option to buy the vehicle.	If you buy a vehicle with a finance loan, you own the car at the end of the loan term.

Pros and Cons of Leasing a Car

Pros	Cons
An easier way to drive a higher-end model vehicle than might be possible otherwise	Leasing will generally end up costing more money as you pay for the period in which the vehicle depreciates at the fastest rate
As the car is new, you will enjoy the vehicle at a time when it is most reliable	Leased cars come with limits on usage and mileage
There are potential tax advantages of leasing vs. buying a car	The vehicle has to be maintained to a high standard - otherwise, you will have to pay a fee for wear and tear
With the stress-free process at the end of the lease, you simply hand the vehicle back to the leasing company	If your circumstances change and you want to return the car early, you will need to pay significant breakage or termination fees that are financially punitive
Leasing usually costs less than finance for buying a car, meaning you will have extra disposable income each month	You will not own the vehicle at the end of the lease period, so you’ll need to spend more monthly payments on a new car

leasing a vehicle is best for people who want to drive a car without making a large down payment

The Costs

The average cost of leasing a car can vary but generally ranges from around $200 to $600 per month or around $2,400 to $7,200 per year.

The average cost of buying a car can also vary depending on factors such as the make and model of the car. However, it can range from around $20,000 to $50,000 or more. This would translate to an average cost of $400 to $1000 per month, or $4,800 to $12,000 per year for a car loan with a five-year term. It's worth noting that these costs are approximate and may vary depending on factors such as location, taxes, and insurance.

Who is Leasing Best For?

You’re likely wondering, “should I lease or buy a car?”. As for the former option, leasing a vehicle is best for people who want to drive a car without making a large down payment. Additionally, monthly costs are lower than buying through finance, so if you want to manage your cash flow tightly on a monthly basis but still want to drive a new car, leasing could be the best option for you.

Ultimately, leasing gives you the chance to drive upmarket, brand-new vehicles on a regular basis, so if you can’t resist that new-car smell, leasing could be a good choice for you.

Pros and Cons of Buying a Car

Pros	Cons
There are no restrictions to mileage or usage, so you can use the car as you’d like	Monthly payments are higher for buying a car with a loan than for leasing a vehicle.
You own the car at the end of the loan period, so you can do what you like with it	You’ll need to make a down payment when buying a car
You don’t have to pay any extra charges for wear and tear	New cars depreciate very quickly in the first few years, so if you can see yourself trading the vehicle shortly after the loan period ends, this could be disadvantageous
The car is yours to keep, and you are free to make any modifications or adjustments to the vehicle as you see fit	Once the vehicle is out of warranty, you are liable for all repair costs. If you are leasing a car, it will almost always be in the warranty period
In the long term, buying a car is cheaper than leasing because the latter requires continued monthly payments	More hassle to sell the car when you want to as opposed to returning a leased vehicle to the dealership

Who is Buying a Car Best For?

Alternatively, buying a car is best for people who want to minimize the cost of the vehicle’s lifetime. Doing so requires more of a capital investment upfront, so buying a car is more suitable for people that have cash available to spend. Buying a car is also ideal for those that want to own the vehicle at the end of the period, with many people enjoying the feeling of owning something significant that they have worked hard to pay for.

Finally, if you are a car fanatic and want to make modifications or adjustments to your vehicle, buying is the best option, as you have the freedom to make these changes.

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Conclusion

Ultimately, when it comes down to the choice of leasing vs. buying a car, both options come with clear benefits and drawbacks. So, as with many other things in life, the final decision will come down to your personal preferences and circumstances.

If you want to drive a nice, new car while still keeping more money behind for monthly expenses, leasing could be the right choice for you. However, if you intend on keeping a vehicle for a long time, then buying would be a better option, as you will own the car at the end of the finance term.

Our advice would be to consider your circumstances and choose the best option for you, and you can be riding into the sunset in your new vehicle in no time.

FAQ

What happens if you crash a leased car?

If you crash a leased vehicle, the company you hired the car from will still require lease payments. Thankfully, your vehicle insurance will cover the cost of the damage (up to the policy limits and less any excess amount). Yet, bear in mind that if the vehicle is totaled, the insurance firm will only pay out on the vehicle’s fair value.

Why should you lease and not buy a car?

There are many advantages of leasing instead of buying a car. For one, monthly leasing payments are lower than payments through financing means. It’s also a more feasible way of consistently driving a new, high-end vehicle without it costing an arm and a leg. Additionally, you don’t have to worry about depreciation or upkeep of the vehicle as the car ages, as the car will not be your problem then!

Can I negotiate a lease price?

Yes, you can negotiate a lease price. Different leasing companies offer contrasting levels of flexibility in negotiations. However, the better prepared you go into the discussion, the more likely your chance of successfully negotiating a lower payment is. Make sure you have shopped around and collected competitor figures for the best chance of a successful negotiation.

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Written by Lauren Le-Hair

As an experienced content writer, Lauren's passion for the finance sector is only exceeded by her love of writing. With years of experience writing for financial websites, she has honed her expertise and developed a deep understanding of the industry. Lauren specializes in delivering top-quality, specialized content with an expert tone of voice and a unique flair, leveraging her extensive knowledge and expertise. In addition, she holds a First Class Bachelor's degree from Staffordshire University.