Leasing vs. buying a car: Pros and cons

Leasing is easier, but buying builds equity

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    Wondering whether to buy or lease your next car? Both options have pros and cons — and some are more obvious than others. Buying means paying less in insurance, for example, but leasing means predictable monthly payments and less paid upfront.

    Key insights

    • A vehicle lease is like a long-term rental; you pay fees upfront, make fixed monthly payments and cover any excess wear and tear out of pocket.
    • Purchasing a vehicle with cash or an auto loan is generally more expensive upfront than a lease, but it builds equity and is cheaper over the long term.
    • Leasing makes more sense if you like driving the latest and greatest cars and can handle the typical restrictions (annual mileage limits, paying to repair large scratches, etc.).
    • Purchasing or financing makes sense if you like the idea of owning your vehicle and plan to own it for a while.

    Leasing a car

    A lease is like a long-term rental. You agree on a fixed monthly price with the dealer, “borrow” a brand-new car for 24 to 48 months, then return it when the lease term ends.

    “Leasing can be a good way to get a dependable, reliable vehicle for a lower upfront cost without the long-term commitment,” Geoff Cudd, owner of FindtheBestCarPrice.com, told us.

    In 2022, 20% of all new vehicles were leased, according to data from Statista.

    A new Lexus RX 350, for example, might cost $900 a month to finance but only $600 a month to lease. And if you decide to keep the car at the end of the lease, you can always pay the “residual value,” which is predetermined in your lease agreement.

    Another advantage of leasing is peace of mind. New vehicles generally come with at least a three-year/36,000-mile factory warranty, so you won’t be on the hook for faulty parts or manufacturer defects (just remember warranties don’t cover negligence, damage or misuse). With a lease, you are covered by the factory warranty typically for the duration of the agreement.

    Some dealers also include complimentary maintenance (oil changes, alignments, etc.) in their lease agreements.

    The chief downside to leasing is that you aren’t building equity with your monthly payments. All that money goes straight into the dealer’s pocket, and you can’t sell a leased vehicle because it isn’t yours. 

    The vehicle is 100% the dealer’s property — like a rental car — so leases are also subject to use restrictions. They have mileage limits (usually 12,000 miles per year), and you’ll be on the hook for “excess wear and tear” like dings or scratches. 

    Pros of leasing a car

    Leases remain a popular option because they allow you to drive a nicer, newer car that might otherwise be outside your price range.

    • The latest and greatest for less: Leases let you drive nicer vehicles that might otherwise be out of your price range.
    • Warranty coverage: You can only lease new vehicles, which tend to have factory warranties of at least three years/36,000 miles. That means you’re off the hook for defects or part failures (you’re still liable for damage or misuse, however).
    • Complimentary maintenance: Some dealers also include complimentary maintenance in their lease agreements (oil changes, tire rotations, etc.), which saves you money.
    • Easy breakup: Leasing saves you the hassle of selling a car. Once your lease is up, you can bring it back to the dealer, pay any outstanding fees or wear-and-tear charges and walk away.
    • New car every few years: Leasing lets you trade up for a new model every few years without significant changes to your monthly payments.

    Cons of leasing a car

    Although many drivers choose to lease their cars, leasing isn’t for everyone. This option comes with mileage and customization restrictions, and it doesn’t help you build equity.

    • Mileage limits: Most lease agreements have annual mileage limits (usually around 12,000) with overage charges of about 25 cents per mile, so leasing may not be the move if you have a lengthy commute or make frequent road trips.
    • No equity: Although leasing is generally cheaper than financing, it doesn’t build equity — so you can never sell your car for a cash payout.
    • Limited customization options: Because leases are glorified rentals, your options for customizing your car (tinting, performance upgrades, etc.) are extremely limited. You’ll need approval from your lessor for any modifications, and even if you’re approved, you’ll typically need to remove all nonfactory parts and modifications before your lease ends.
    • Wear-and-tear charges: Dealers generally won’t charge you for “normal” wear and tear like small scuffs, but you’ll have to fix dings, dents, scratches, missing parts and poor-quality repairs on your dime. In some cases, excessive wear-and-tear charges can cost thousands of dollars.
    • Early termination fees: If you decide you no longer need (or want) your leased vehicle, you may be able to cancel your lease — but not without paying $2,000 or more in early termination fees.

    Buying a car

    Purchasing a vehicle is exactly what it sounds like: You negotiate a price, put down cash and drive off in your new car.

    Of course, most buyers don’t have $40,000 in cash to spend on a new vehicle — which is why nearly 84% of new vehicles in 2022 were financed with auto loans, according to Statista. In these cases, the lender provides the lump sum for the vehicle and the buyer pays the lender back over time.

    Whether you pay cash or finance your car, the chief advantage over leasing is that the car is yours. Not only do you have more flexibility in how you treat it (customization, mileage, etc.), but you’re also building equity with each monthly payment.

    Once you own your car outright, you can opt for liability-only insurance, which can save you thousands annually on premiums; most lease/finance agreements require full coverage.

    Let’s say rather than leasing a 2023 Lexus RX 350, you finance a 2018 RX 350 for the same price: $600 a month. After 36 payments, you’d have thousands of dollars’ worth of equity in the used model. After paying off your loan at 60 months, you now own your Lexus free-and-clear.

    The biggest drawback to purchasing or financing a car is the cost. It’s generally much cheaper to lease than to finance a new vehicle, so if your budget is $600 a month, you’ll typically be choosing between leasing a new vehicle or financing a used car.

    And once cars reach that age, they’re usually out of warranty. This means you’ll be paying out of pocket for repairs or paying for an extended warranty.

    On the flip side, however, you can scratch, ding and dent a car with no financial consequences as long as you own it. Owning a car is also cheaper in the long run — you’ll eventually pay it off and only owe insurance premiums each year (plus regular maintenance).

    » MORE: How to buy a new car

    Pros of buying a car

    All things considered, buying is the move if you plan to own your car for a while, beat it up or drive farther than 15,000 miles each year. You may also like the feeling of wrapping your hands around the steering wheel knowing it’s entirely yours.

    • Sense of ownership: Financing a vehicle and working toward 100% equity can offer a sense of pride and progress.
    • Building equity: Unlike with leasing, each monthly payment on an auto loan builds your ownership in the vehicle, so you can sell, pay off your loan and — in some cases — even profit.
    • No mileage limits: It’s your car, so nobody cares how far you drive it each year. Just keep in mind that both factory and extended warranties expire after a certain mileage number.
    • Small scratches and dings aren’t a problem: While leased vehicles need to be kept in resale condition, a vehicle you own or finance can be scratched and dinged up without immediate consequence (this is why dog owners may want to rethink if they’re considering a lease).
    • Cheaper over the long term: You’ll pay off your auto loan eventually, meaning you’ll take 100% ownership and only have to pay for insurance and maintenance. Plus, once you fully own your car, you’ll have the option to downgrade your insurance from full coverage (required by most lease/finance agreements) to liability-only, which can save you $1,000 or more annually on premiums.

    Cons of buying a car

    Owning a car is great, but it’s not cheap, especially if it’s new. If you want the newest car available when you upgrade, buying might not make sense.

    • Depreciation: New vehicles tend to depreciate 15% to 40% within months, meaning you risk being underwater on your auto loan for the first few years. Gap insurance can help in the event your vehicle is totaled, but if you simply need to sell it, you may find yourself still owing money on a car you don’t own.
    • May limit you to used car: Purchasing or financing a used vehicle can lower your monthly payments and save you from a year of depreciation, but a used car may not have the cutting-edge features and gadgets you want.
    • Warranty coverage: If you buy a used car that’s at least 5 years old, it is likely out of factory warranty, meaning you’ll be on the hook for unexpected repairs. That’s why we strongly recommend financing a historically reliable vehicle — or insuring an unreliable vehicle with an extended warranty.

    » MORE: Should I buy an extended warranty on a new car?

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      How to choose between leasing and buying

      So, is buying or leasing right for you? What are your biggest concerns, and what can you afford? Compare your options using the table below.

      In the end, which is right for you: leasing or buying?

      You should probably lease a car if the following are true:

      • You want a newer car
      • You only need a car for two to three years
      • You like the idea of getting a new car every few years
      • You drive fewer than 12,000 miles per year
      • You don’t feel the need to own your vehicle
      • The vehicle you want is known for poor reliability and/or high repair costs

      But it’s probably in your best interest to buy a car if:

      • You don’t mind driving a used vehicle
      • You plan on owning your vehicle longer than five years
      • You want to take your vehicle off-road or to the track
      • You may end up treating the vehicle roughly
      • You like the idea of building equity and eventually paying off your car
      • The vehicle you want is known for long-term reliability and low-stress ownership


      How long is an auto lease?

      A typical auto lease lasts 24 to 36 months, though some stretch longer.

      Do auto lease payments go toward a purchase?

      No, a lease payment is essentially a rental fee and will not earn you any equity in the vehicle.

      That said, lease agreements include a “residual value,” which is a price you can pay to purchase the vehicle outright at the end of the lease.

      Do you need car insurance for an auto lease?

      Yes. auto insurance isn’t included in the cost of the lease, and you’re required to maintain full coverage for the duration of most lease agreements. Your lessor may also require gap insurance, which covers the difference between what insurance pays and what you still owe on the vehicle in the event of a total loss.

      Is insurance cheaper for leased vehicles?

      It’s often more expensive to insure a leased vehicle than a purchased or financed vehicle because lessors have higher insurance requirements. Leased vehicles are also new and higher in value in most cases — and therefore pricier to insure.

      Article sources
      ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
      1. Statista, “ Percentage of new vehicles on lease in the United States from 3rd quarter of 2017 to 3rd quarter of 2022 .” Accessed March 9, 2023.
      2. Statista, “ Share of used and new vehicles with financing in the United States from 2017 to 2022 .” Accessed March 9, 2023.
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