Leasing Vs. Buying A Car: What’s Cheaper?

Wondering if it’s cheaper to lease or buy a car? The answer depends on your priorities and factors such as how much you drive. In most cases, buying a car tends to be the cheaper option if you drive a lot and want to use the same car for the long term. However, leasing a car can mean driving a new car every few years.

Before making a decision about your next vehicle, take the time to consider leasing versus buying a car, including the advantages and disadvantages of both.

Leasing Vs. Buying A Car: At A Glance

Thinking about buying versus leasing a vehicle, or vice versa? Here’s a breakdown of key facts about each option.

6 Questions To Help You Decide To Lease Or Buy A Car

Plenty of factors are worth considering when leasing or buying a car. Aside from the financial repercussions, it’s important to think about your lifestyle.

1. What’s Your Monthly Budget For A Car?

Leasing a car may look cheaper on the surface because of the lower monthly payments. You’re only paying for finance charges, taxes and the vehicle’s depreciation for the term of your lease. When buying a car, you’re paying the principal and interest for your loan, typically along with an upfront down payment. However, you’ll generally end up paying more for a lease since you’ll be driving a new vehicle and paying a higher rate of depreciation.

2. How Long Are You Comfortable Making Car Payments?

Monthly payments on a lease never stop for the duration of your lease term. With a car purchase, however, you won’t have any monthly payments once you pay off the loan. This can free up funds you were using for car payments, allowing you to allocate this money toward other financial goals.

3. What’s Your Weekly Commute Like?

If you drive a significant distance, it may be better to purchase a vehicle because leases limit the mileage you can rack up on the car. Typically, a standard contract allows you to drive up to 36,000 miles for a 3-year lease, or 12,000 miles per year. If you exceed that amount, you’ll need to pay for each mile once your lease ends. It can end up costing quite a bit if you drive much more than your allotted mileage.

4. Do You Want To Have The Newest Car Model Available?

If you want the latest model, leasing a vehicle may make the most sense for you and allow for lower monthly payments. That said, too many new cars in too short of a time frame can end up costing you more money than a purchase – especially if you choose to break one lease or multiple leases and pay the associated fees.

5. Do You Keep Your Car Clean?

It’s normal for a car to get messy, especially if you have children. While leasing gives you some wiggle room with regard to your car’s overall condition, dealers expect you to return the car in good condition. You’ll need to ensure your car is clean to avoid paying extra fees.

6. Are You Considering An Electric Vehicle (EV)?

Some experts believe leasing an EV can be a smart play for a few reasons. First, the technology is changing rapidly – the EV you buy today could be outdated before you pay the loan off, as charging standards and range improve. Also, leased vehicles built outside of North America may be eligible for tax incentives that aren’t available when purchasing the same vehicle.

The Cost Of Buying A Car

The exact cost of buying a new vehicle depends on factors such as your credit score, the vehicle you buy, where you live, and your down payment amount (if any). According to data released by Kelley Blue Book in November 2023, the average cost for a new vehicle was $48,247.

Advantages Of Buying A Car

Buying a car means that you either purchase the car outright in cash or take out an auto loan to finance your purchase. A vehicle purchase offers you freedom along with perks such as the opportunity to build equity and on time loan payments can boost your credit score. Remember that lenders report your credit activity.

A car loan may seem like a huge responsibility, but once it’s paid off, the car is your asset and yours alone. Despite the likelihood of higher monthly payments, you’ll enjoy a nice savings once you pay off the loan.

Disadvantages Of Buying A Car

Although buying a car offers advantages such as the ability to own an asset once a loan is paid off, there are some downsides. These include – at least in many cases – high upfront costs and maintenance fees.

You could make a down payment or trade in a vehicle to help save on costs, but with higher car prices and interest, you’ll typically pay more upfront than you will with a lease. Plus, since a car you buy is technically your asset, you’re responsible for maintaining it through regular oil changes and any necessary repairs – which all cost money, of course.

There’s also the matter and potential hassle of selling a car, which can be tricky if the car loan isn’t paid off.

Who Should Buy A Car?

People who drive often – such as those with long work commutes – may benefit greatly from buying a car. The same is true for families and car enthusiasts who want to customize their ride.

The Cost Of Leasing A Car

The monthly cost of leasing a car tends to be lower than a monthly car payment. According to CNN, per Experian, the average lease cost per month for a new vehicle was $606 in Q4 of 2023 compared to $738 for an auto loan payment.

Effectively, you’re paying for the depreciation costs (plus other fees) during the time you lease the vehicle, instead of the interest and principal you’d pay with a loan.

Keep in mind that the average fee mentioned may not include other costs, such as car insurance, taxes, extra mileage charges and fees you could incur at the end of your lease contract.

Advantages Of Leasing A Car

Advantages of leasing a car include lower upfront costs and monthly payments, plus the ability to get a new car every few years. In this way, it could make sense financially for those who want to drive a higher-end car but can’t afford to purchase one. It could also make sense if you want to drive a new car more often but not worry about the hassle of selling a vehicle.

Disadvantages Of Leasing A Car

When leasing a car, you end up paying fees and costs – but in the end, you don’t own the vehicle. Additional fees, such as any extra mileage fees and wear and tear expenses, tend to add up. In the long run, you might pay more on a vehicle lease than a vehicle purchase.

Another disadvantage of leasing is that lease terms often have restrictions. You most likely won’t be able to modify your car or add parts to it. If you do, but you want to avoid paying fines, you’ll have to remove the parts and restore the car to its original condition when your lease is up. Modifying the vehicle may also mean paying more for any residual damage.

Who Should Lease A Car?

Leasing a car can make sense for people – such as those that work-from-home – who don’t drive many miles. It could benefit business owners since they may be able to deduct lease payments on their taxes. Those who want to drive a new vehicle every few years, and are fine with the costs associated with doing so, might also consider leasing a car.

Alternatives To Purchasing a New Car

Average car prices have gone up in recent years, putting the purchase of a brand-new car outside the budget of many potential buyers. Used cars tend to be much more affordable, however, and almost always come with a much lower sticker price than the same car would carry if it was brand new. Shopping around for the best auto loan will help you find the best interest rate and repayment term for your needs. It’s a good idea to check your credit score and be aware of how it will inevitably influence the interest rate you’re offered.

FAQs: Car Buying Vs. Leasing

Still debating between leasing and buying a car? Learn more from the answers to the following frequently asked questions.

Is it better to just lease or buy a car?

There’s no right or wrong answer when choosing between buying and leasing a car. Those who drive a lot, such as commuters, are probably better off purchasing a vehicle. But drivers who want a new vehicle every few years may want to consider leasing.

Are payments cheaper when leasing or buying a car?

Monthly payments to lease a vehicle tend to be lower than monthly payments on a car loan, but financing a vehicle purchase may cost less in the long run. Drivers who lease also need to consider their mileage: Exceeding the mileage specified in their lease terms can cost them extra at the end of the lease.

Why are car leases so expensive now?

The cost of cars has significantly increased, as has the cost of leases. Plus, many current lease contracts aren’t as favorable toward drivers as they once were – a result of increased demand for new cars. Keep in mind that leased electric vehicles (EVs) made outside of North America may be eligible for tax incentives, while the same vehicle won’t qualify if you’re buying it.

The Bottom Line

Leasing a car can be the way to go if you’re looking to pay less each month than you would pay on a car loan, and the same is often true for those who drive relatively little or want to switch vehicles every few years. Buying is generally best for frequent commuters, drivers who may want to modify their vehicle and those who wish to own their means of transportation. Whether you’re planning to buy or lease, though, you’ll want to get your finances in order as you’re looking for a new vehicle.

Consider downloading the Rocket Money℠ app to keep track of your expenses and income while gaining insights into how you can save up for a large purchase.