Get 50 free money moves.
Sign up for the free ebook from Easy Money by Policygenius.
Which is more cost-effective?
Buying is usually cheaper than leasing in the long run
When you lease a car, you’re basically paying to rent it long term
Leasing usually means you can get a more expensive car than you could afford if you were buying
Anyone planning on getting a car is faced with two options: Buying a new or used vehicle, usually with the help of a car loan, or leasing a car, which is basically a kind of long-term rental that allows you to make monthly payments in exchange for the use of a car. Buying a car with the help of a loan and leasing a car both involve monthly payments, but each has benefits and drawbacks.
Owning a car gives you a certain amount of freedom, but it also comes with more responsibility, while leasing a car means you don’t have as much control over what you do with your vehicle, but every few years you’ll get to trade it in for a newer model.
And, of course, there's the matter of cost — but whether buying or leasing is more expensive really depends on how long you drive your car. Leasing can mean lower monthly payments, but years of leasing a car will wind up being more expensive than if you had bought it.
If you’re thinking of getting a car but you’re not sure whether to buy or lease, let’s break down the pros and cons of each.
While some people can afford to buy a car outright, most people pay for a new or used car by taking out an auto loan. You can get a car loan from a bank, credit union, or car dealership.
Essentially, the lending institution agrees to loan you the money you need to buy the car you want, and you agree to pay it back, plus interest. That allows you to leave the lot with a new car, and you’ll continue paying it off over time.
Ownership. If you buy your car outright, or once you’ve finished paying off your loan, the car is totally yours to drive as much or little as you want. You’re also free to sell it if you choose. Learn more about selling a car with a loan on it.
Buying can be cheaper than leasing in the long run. Say you take out a car loan with a 4 year loan term. That means that you have four years of payments before you’ve paid off the loan — but after that, there are no more payments. If you drive the car for long enough, it will likely be much cheaper than if you’d been leasing a car for the same amount of time.
Monthly payments are higher. While your car loan payments do have an end date, they tend to be higher than monthly lease payments, which can be an important consideration for drivers more concerned about monthly budget than long-term savings.
Depreciation. Owning a car means it’s yours to sell or trade in when you’re ready to stop driving it. But cars depreciate in value quickly, especially if you’ve driven yours a lot, so it may be worth far less than you paid for it by the time you’re ready for a new car.
Maintaining an older car. Leasing a car means you’ll always be driving it relatively new, but when you buy a car, you could be driving it for a decade. That means that you’ll have to deal with the hassle and cost of maintaining an aging car instead of getting a new one every time your lease is up.
Leasing a car, as we mentioned above, is basically a long-term rental. You lease a car from a lessor, who allows you to use the car for a monthly fee. When the lease team is up, you return the car, and can lease a new one.
Driving a new car every few years. One of the perks of leasing is getting to drive a new, updated car every three years or so. You may also be able to lease a nicer car than you could afford if you were buying — another big perk for some drivers.
Lower monthly payments. Lease payments are less than monthly payments on a car loan, in part because you don’t have to pay any interest when you’re leasing. So if you only plan on having a car for the short term future, leasing could be a good option.
More expensive in the long run. If you’re planning for the long haul, leasing will eventually cost you much more than buying, because loan payments end while lease payments go on for as long as you plan to continue driving.
Think of it this way — if leasing a car would mean making monthly payments of $260 and buying would mean monthly payments of $350, with a $2000 down payment for both, leasing is cheaper if you only need a car for a couple years.
But say you’re going to drive the car for eight years. If you pay off your car loan after four of those years, your total cost will have been $18,800. If you had been leasing a car at $260 a month for those same eight years, you’ll be making payments the whole time, and your total will come out to $24,960, meaning if you're planning for the long haul, buying can save a significant amount of money.
Restrictions on your driving. When you lease a car, you agree to abide by certain restrictions or limits. That almost always includes an annual mileage limit. If you go over your allotted miles, often around 10,000 to 15,000 a year, you’ll be charged extra fees. You may also face extra fees for having more than a normal amount of wear and tear on your leased vehicle, or if your car is damaged when you return it at the end of a lease.
Recession-proof your money. Get the free ebook.
Get the all-new ebook from Easy Money by Policygenius: 50 money moves to make in a recession.
About the author
Anna Swartz is a Managing Editor at Policygenius in New York City, and an expert in auto insurance. Previously, she was a senior staff writer at Mic, writing about news and culture. Her work has appeared in The Dodo, AOL, HuffPost, Salon and Heeb.
Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.
Was this article helpful?
We make it easy to compare and buy insurance.
Security you can trust
Yes, we have to include some legalese down here. Policygenius Inc. (DBA Policygenius Insurance Services in California) (“Policygenius”), a Delaware corporation, is a licensed independent insurance broker. Policygenius does not underwrite any insurance policy described on this website. The information provided on this site has been developed by Policygenius for general informational and educational purposes. We do our best to ensure that this information is up-to-date and accurate. Any insurance policy premium quotes or ranges displayed are non-binding. The final insurance policy premium for any policy is determined by the underwriting insurance company following application.
Copyright Policygenius © 2014-2020