One of the biggest questions car shoppers have to consider is whether they should lease or buy their car. It’s a complicated question, and one that deserves careful consideration. On one hand, leasing usually leads to lower car payments. On the other hand, buying means you own the vehicle once you finish making car payments. Here are some tips to figure out which is right for you.
This is part of our Car Buyer’s Glossary. series breaking down all the terms you need to know if you’re buying a new or used car from a dealership.
Leasing
Leasing a car is much like leasing an apartment. You sign a contract, to pay a fixed price, to cover a fixed mileage, over a fixed period of time. Your monthly lease payment depends on several factors, including the vehicle’s price, your down payment amount and the number of miles allowed per year. As a general rule, leasing is cheaper per month than buying, all other things being equal. Considering how quickly new car prices are climbing — the average transaction price of a new vehicle is over $48,000 in 2023 — lower monthly payments are attractive to a lot of people shopping for a new car. A recent report from J.D. Power indicated that the average monthly payment for a new vehicle loan in December of 2022 was $718, up $47 from the previous year. Some payments are much higher. The same report showed that 16% of consumers that same month took out loans with monthly payments of over $1,000.
Another leasing option is the one-pay lease. Paying for the whole lease in one lump sum can save you significant money in fees, but you need to have the cash on hand. It’s not for everyone. Leases are cheaper because you won’t retain any equity. For better or worse, once the lease is up, you’ll simply pay for any damage or mileage overages, then return the vehicle, unless you buyout.
Leasing can be especially attractive for buyers who don’t put a lot of miles on their cars. The fewer miles a lease covers, the lower the monthly payment is likely to be. It’s also important to know what the penalty fees will be for going over on mileage. There may also be fees if you decide to turn the vehicle in early and prematurely end the lease agreement.
Buying
In contrast, financing to buy a car results in a higher monthly loan payment than leasing, but you’ll eventually own the car outright. You can only lease at the dealer, but you can get auto loans at your local bank or credit union, and that means you can sometimes get a better deal. Know your credit score, shop loan rates, and get pre-approved before heading to the dealer. Check out the Autoblog loan calculator to explore your options for loan payments.
Leasing vs Buying Pros
There are pros and cons to both options, so here are a few tips to help make your decision.
Leasing Pros
Leasing may be a good choice if…
- You don’t want to put down a large chunk of money
- You want a new car frequently
- You’re okay with having a car payment
- You drive fewer than 15,000 miles per year
- You generally keep your cars in good, undamaged condition
- You are qualified to write off the lease on your taxes
Buying Pros
Financing to buy a car may be a good choice if…
- You can afford a higher monthly payment
- You drive a lot
- You don’t need a new car very frequently
- Your cars tend to acquire a few dings and scratches
- You want to stop making payments at some point
With these tips, you should have a much better sense of whether or leasing or buying is the right move for you. Visit Autoblog.com to learn more.