Should I Lease or Buy a Car?

Leasing and financing are both popular ways to quickly get behind the wheel of a brand-new car. But each option comes with unique benefits and trade-offs. For example, with leasing, you can switch cars every few years without the high upfront cost of buying one. Monthly lease payments are also typically more budget-friendly.

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Financing, on the other hand, gives you full ownership of the car once it’s paid off, turning it into an asset you can keep, trade in or sell. So, is it better to lease or buy a car? It all depends on your current financial situation and long-term goals. 

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Key takeaways

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• Buying a car builds equity, and you own it once the loan is paid off. Leasing is like a long-term rental.
• Leasing comes with mileage limits and strict wear-and-tear guidelines. Buying gives you freedom to drive as much as you want. 
• You may secure lower monthly payments by leasing and pay less for maintenance. 
• Buying is better if you’d like to own the car long-term. If you prefer to trade-in for newer models often, leasing makes sense.
• A healthy credit score can help you get the best leasing or financing terms. 

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Key differences between leasing and buying

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Leasing is when you rent a car for a specified period, usually two, three or four years. You can have the vehicle as long as you make the monthly payments, but you don’t own it. As such, there are limits to how you can use it, including how much you can drive it. Most leases include an annual mileage limit of 12,000 to 15,000 miles. Exceeding the agreed miles or returning the car with excessive wear and tear usually attracts extra fees. 

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Financing, on the other hand, involves taking a loan to buy a car. You can drive the vehicle while making monthly payments, but the lender holds the title until you’ve fully paid it off. 

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When considering leasing or buying a car, keep in mind that monthly car payments will differ for each option. Financing costs more monthly because you’re paying off the entire value of the car with interest. In contrast, lease payments cover fees, financing charges and the car’s depreciation while you drive it. 

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For example, a monthly payment for a $50,000 vehicle over 36 months may be $676 if you lease, but $1,366 if you buy.

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Pros and cons of leasing a car

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Weighing the pros and cons of leasing a car is key to determining if it’s your best choice. To help you make an informed decision, here are its biggest advantages and drawbacks:

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Pros

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• Lower upfront costs: Leasing a used car or a new one costs significantly less than financing in most cases. It can be anywhere between 30% and 60% cheaper, depending on the car’s value and lease terms. 
• Tax advantages: You can get tax deductions from leasing a vehicle for business purposes.
• Own the leased car: You can buy a car at the end of its lease. It requires paying the car’s estimated worth once the lease ends, plus any applicable fees or taxes. For example, after leasing a $30,000 car for two years, you may buy it for its residual value of $15,000.
• Smaller or no down payment: Leasing typically requires a smaller down payment than financing. You can even find zero-down payment lease offers.
• Easier trade-ins: You can switch cars or upgrade to newer models every few years with greater ease and less expense.
• Warranty coverage: Most new car leases come with a manufacturer’s warranty that lasts for the duration of the lease, saving you money on repairs.

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Cons

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• Mileage limits: Lease contracts usually specify how many miles you can drive in a year. If you exceed the mileage limit, you’ll be charged a fee.
• No equity: Unlike financing, leasing doesn’t let you build ownership or equity. Even after years of payments, you don’t own the vehicle or have any rights to it unless you buy it at the end of the lease.
• Wear and tear charges: If you return the car with excessive wear or tear, you have to pay for it.
• Early termination fees: Ending a lease early can attract heavy penalties, including paying off the remaining lease balance. 

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Pros and cons of financing a car

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Here are the upsides and downsides of financing:

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Pros

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• Long-term value: Once you pay off the loan, you won’t have any more monthly payments. You fully own the car and have the right to keep, trade or sell it.
• Customization: Since you fully own the vehicle, you can customize it as you please. You can’t do this with a leased car.
• No mileage limit: Unlike leasing, you can drive a financed car without limits.
• Option to refinance: With online auto refinancing, you can switch to a different car loan to lower interest rates and reduce monthly payments. This isn’t possible with lease agreements.

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Cons

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• Maintenance costs: Since you own the car, you’ll bear its repair and maintenance costs. However, having a valid manufacturer or extended service warranty may help minimize such expenses. 
• Higher payments: Compared to leasing, financing usually requires a larger down payment and has higher monthly payments. 
• Potential loss: If you miss payments, the lender may repossess the car, meaning you’ll lose the vehicle and every penny you’ve paid toward the loan. Also, vehicles depreciate over time, leading to your car gradually losing value after buying it.

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How to decide to lease or buy a car

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Data from Experian shows that the number of Americans leasing new cars grew from 17.22% in 2022 to 22.61% in 2023 and 24.49% in 2024. These numbers suggest a growing interest in leasing over buying. So, should you lease or finance a car? Well, it all depends on your finances, preferences and goals. 

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If you prefer driving the latest models or trying different brands without the long-term financial commitment of ownership, leasing is ideal. It’s also the way to go if you’d rather have smaller monthly payments. 

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In contrast, financing is the better choice if you want to build equity and have your monthly payments go toward eventually owning the car. It’s also ideal if you’d like to keep the vehicle long-term and drive without mileage limits.

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When it makes sense to lease a car

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It may be a good idea to lease a car if: 

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• You don’t drive long distances and wouldn’t exceed the mileage limit.
• You need a lower monthly car payment.
• You prefer to drive newer cars for a few years at a time before trading in. 
• You don’t care about owning or building equity in a car.

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When it makes sense to buy a car

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It may be a good idea to buy a car if: 

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• You can pay for it outright or afford monthly loan payments without issue.
• You want to own the vehicle long-term.
• You want the freedom to customize your car. 
• You plan to get a lot of use out of the car (e.g. high mileage).

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Is it better to lease or buy a car?

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Before you choose to lease or buy a car, consider what you can afford and what you want out of a car. Leasing may be a bad fit if you want the freedoms that come with car ownership, such as selling, customizing or driving your car without limits. It’s more suitable if you want to spend less to drive your desired car for a limited time. 

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Ready to learn more about car ownership and financing? Visit the RefiJet blog today!

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FAQs

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Here are our answers to common questions regarding leasing or buying a car:

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What are the main differences between leasing and financing a car?

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The biggest difference is you don’t own the car if you lease. But with financing, the car’s 100% yours once you complete the payments. Also, leasing comes with customization and mileage limits, while financing does not.

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Which option usually comes with lower monthly payments?

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Leasing typically has lower monthly payments, making it the more cost-effective option if you don’t plan to keep the car long-term.

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Does leasing help me afford a more expensive car than financing?

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Since leasing usually comes with lower upfront costs and monthly payments than financing, it can make affording an expensive or newer car more affordable.

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Does my monthly mileage play a role in choosing between leasing and buying a car?

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Yes, you should consider your monthly mileage when picking between leasing and buying. Leasing isn’t the best choice if you typically drive more than the monthly mileage limit allows, as exceeding the limit can attract extra fees.

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