Leasing vs. Buying a Car: Pros and Cons

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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.

, - June 26, 2018

Are you ready to get a new car? You might be asking yourself whether it's better to lease or buy a vehicle. Before you choose your next car, you need to make sure you pick the best option for you. Paying for a new or used vehicle – whether it's a lease or not – can be costly. Leasing may seem attractive, but it isn’t for everyone, and sometimes buying a car is the better long-term option.

Below are just some of the pros and cons of leasing vs. buying a car.

What to Know About Leasing a Car

What exactly does it mean to lease a vehicle, and why is it so popular? Many borrowers like the idea of leasing because they get a new car after each lease is up. Leasing is a good option if you’re looking for the latest and greatest models to drive – without actually purchasing it.

How Leasing a Car Works

The important thing to remember in leasing is that you essentially rent a car for a set amount of time – usually 36 months. The monthly payment is determined by taking the difference in the capitalized cost of the vehicle and the residual value (expected value at the end of the lease) – plus interest charges – divided by the number of months in the lease term. At the end of the lease, you can buy the car, give it back and choose to not lease, or give it back and sign a new lease.

Not sure if leasing is right for you? Take a look at the pros and cons of leasing a car:

Pros of Leasing a Car

  • Lower monthly payments – Only responsible for the vehicle’s depreciation.
  • You don’t run the risk of having negative equity – You don’t own the car, therefore, you don’t have to worry about owing more than what the vehicle’s worth.
  • The car remains under warranty – Most manufacturer warranties last three years, which is the same length as most leases.
  • Down payments are optional – A down payment won’t lower the overall cost of the lease, but it can lower the monthly payment.
  • Always up to date with technology and safety – Because leased vehicles are typically new, they’re equipped with the latest and greatest car technology.

Cons of Leasing a Car

  • Mileage limit – You must stay within the mileage limit given. If you go over the limit, you’ll need to pay (around 15 to 20 cents per mile) for the extra miles driven.
  • Extra wear and tear fees – Beyond small scratches and dents, you’ll need to pay for certain repairs out of pocket.
  • Can’t end the lease early – If you no longer want your leased car, it’s extremely difficult to break a lease contract early. If you can, it’ll be an expensive process.
  • GAP insurance in most cases – There’s no getting out of purchasing GAP insurance for the leased vehicle.
  • No residual equity – There’s no equity in the car at the end of a lease. Even if you purchase the vehicle in the end, you must finance the end balance, which means the interest rate could be higher.

Is Buying a Car Better than Leasing?

Whether buying a car is better than leasing ultimately depends on you and your needs. If you have plans to buy a vehicle in the future, financing one now can be useful to use for a future trade-in. How you go about getting financing requires approval from a lender.

How Buying a Car Works

Regardless of your credit situation, you need to apply for a loan with a lender in order to get approved. If you have good credit, you more than likely can walk into any dealer, pick out a car, and finance it. But, if your credit is suffering, you can expect to need a special finance dealer, and they’re not always easy to come by.

Pros of Buying a Car

  • Fix repairs on your time and money – If you can’t afford to fix something right away, you can do it on your own time and budget accordingly.
  • Drive as much (or little) as you want – Because you own it, there’s no mileage limit you have to stick to.
  • No payments needed after the loan – Once the loan is paid off, you can do what you want with the car. It’s officially yours!
  • No customization fees – If you want add on to the vehicle after you buy it, you can do it without being penalized.
  • Credit doesn’t need to be great – You don’t need great credit to buy a car. There are subprime lenders out there willing to work with you.

Cons of Buying a Car

  • Higher monthly payments – You can lower your monthly payment with a trade-in or a bigger down payment, but because you’re paying for the entire car, your monthly payments will be higher.
  • Potential for higher interest rate – This is especially true if your credit is poor. You can expect to have an interest rate in the double digits, but you can often refinance once your credit improves to get a better rate.
  • Negative equity – If you opt for a longer loan term, you risk being upside down on your loan for longer.
  • Down payment requirement – A down payment is required if you have bad credit, so make sure you budget accordingly.
  • Depreciation – Your car’s market value can drastically change over time due to depreciation, and your vehicle will be worth less the longer you keep it.

Leasing a Car vs. Buying a Car: Which is Right for You?

Every consumer and car buying situation is different. There’s no right or wrong answer as to whether or not you should lease or buy. Car buyers need to look at all options and their finances to find the best solution for them.

When you get in contact with a dealer or lender, make sure you ask any and all questions you may have about the car buying or leasing experience. Some final questions to ask may be:

  1. Is GAP insurance included?
  2. Can I transfer the lease?
  3. What do the warranties cover?
  4. Will I need a down payment, and how big if so?
  5. How much are tax, title, and license fees?
  6. Are there any ride sharing restrictions?

Don’t let any unanswered questions leave you hanging. Make sure you understand the differences between buying and leasing so you can make the right choice for you. If you’re ready to get the process started right now, fill out our auto loan request form to get connected to a dealer.


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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.

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