Leasing vs. Buying a Car: What’s Right for You?
So you’ve decided to get a new car. You’ve picked out everything from the color to the floor mats. But pump the brakes. Should you lease or buy? There are many factors to consider.
Check out this overview of leasing vs. buying, plus get help deciding how to save for your next set of wheels.
Key Points
• Owning a car provides unlimited mileage and the flexibility to sell the vehicle at any time.
• Leasing a car results in lower monthly payments and the opportunity to drive newer models frequently.
• Leasing imposes mileage limits and potential fees for excessive wear and tear.
• Buying a car involves higher upfront costs and ongoing loan payments, but builds equity.
• Lifestyle and financial stability should be considered when choosing between leasing and buying.
Owning vs. Leasing a Car
When you own a car, you purchase the vehicle outright from a dealer or private owner with cash or by financing it. You can keep it for as long as you want, and you can sell it in the future, if you wish.
When you lease a car, you do not own the vehicle. Instead, you make monthly payments to the owner for the right to use the vehicle. You must return the car at the end of your lease agreement or buy it at that time.
Initial Costs
When buying a car, the upfront costs are fairly obvious. You either need enough money to buy the car outright, or you need a big enough down payment to start financing the vehicle. Financing will also involve taxes, registration fees, and other charges.
When financing a car, it’s a good idea to look at the total cost: Multiply the monthly payment by the number of months in the loan, add the cost of taxes, fees, and add-ons, and finally subtract the value of any trade-in or down payment. The result is your total cost.
With leasing, the upfront costs can vary. Typically, the initial costs to lease a car include at least the first month’s payment, a security deposit, taxes, registration fees, and an acquisition fee.
Some lease charges are negotiable, according to Edmunds. They include the cap cost, or basically what the vehicle would sell for, and sometimes the “money factor,” or interest rate.
If you suspect that a dealer is marking up the money factor, you could ask for a lease based on its “buy rate” — the rate you could get from one of the dealer’s lending partners without the dealer markup.
Many other factors that may be negotiable during the leasing process are the mileage allowance (you can always try to get a higher allowance without paying extra fees); the trade-in value of any car you’re trading in; and, if you plan to buy the leased vehicle after the term, the buyout price (you can try to haggle for an amount lower than the anticipated value of the vehicle at the end of the lease).
Monthly Costs
If you buy a vehicle outright, you will not have to make any monthly payments, of course. If you take out a loan, you will need to make a payment toward the principal, plus interest, each month. You’ll also need a good credit score to finance a car.
When leasing a car, you will be required to make monthly payments that include interest charges and taxes.
Regardless of whether you lease or buy your car, remember to budget for recurring costs, such as fuel and auto insurance.
Recommended: Car vs Truck Value: Comparing How They Depreciate
Track your credit score with SoFi
Check your credit score for free. Sign up and get $10.*
Better to Lease or Buy a Vehicle?
When you own your car, it’s yours, and you can drive it as often as you’d like. If it’s a new purchase, you’ll get a manufacturer’s warranty for three years and sometimes longer.
When you lease, typically for three or four years, the number of miles you can drive in a given year is usually limited to 10,000 to 15,000. If you exceed the mileage limit, you will pay an additional fee per mile.
Beyond mileage, you may have to be more careful when driving a leased car. Any scratches, dents, or dings could come with wear-and-tear penalties.
What about repairs? A leased car is usually still covered by the manufacturer’s warranty. Basic maintenance may also be covered.
Two other broad thoughts:
Consider Your Lifestyle
If you’re someone who simply loves to go on road trips with your mountain bike, surfboard, and camping gear in tow, owning may be a good option. That way, you never have to worry about how many miles you’ll log or the scratches your car will get during your adventures.
If you’re looking for a commuter car, or if you like to have the newest model with the latest tech accessories, leasing a car may be the way to go. When your lease is up, you can look for something new.
Just realize that when the lease ends, you may face a turn-in fee if you don’t lease another car from the dealer.
Recommended: How to Spot Good vs. Bad Car Value Estimates
Consider Your Finances
Before deciding to buy or lease a car, it’s crucial to look at your current financial situation.
If you have enough money tucked away to purchase the car outright, would you still have money in savings?
Or if you’re looking to take out a loan, do you have enough money coming in each month to cover the payments? Do you have enough money in an emergency fund to cover unforeseen events? If you can answer yes to these questions, you may be in good shape to buy a vehicle.
As for leasing, you should assess whether you have enough income to cover the lease payments for the entire term. Breaking a lease can be an expensive proposition: It means paying the balance due, including any penalties and fees.
You also want to ensure that you have enough money to cover any unexpected expenses, including costs for going over your mileage limit.
Recommended: Does Paying Off a Car Loan Help Your Credit?
Dollars & Sense of Leasing or Buying a Car
The monthly cost of leasing a vehicle is often lower than auto loan payments. But to parse it further, consider the costs of buying a new vs. used car. (Buying a high-mileage car has its own pros and cons.)
In one detailed comparison of leasing a car, buying a new car, and buying a used car, over the course of six years the total costs for a used car were the lowest (the comparison did not include any repairs). Leasing was the next lowest. Buying a new car had the highest total costs.
Here’s another wrinkle if you do lease: If you decide to buy the car at the end of the contract, you’ll likely pay thousands of dollars more than if you had bought it from the get-go.
The Takeaway
The decision to lease vs. buy a car can rest on factors like total costs, annual mileage, and the urge to drive the latest model every few years. As you weigh your options, consider how you plan on using the car and what your financial situation will allow.
When you’re ready to shop for auto insurance, SoFi can help. Our online auto insurance comparison tool lets you see quotes from a network of top insurance providers within minutes, saving you time and hassle.
Auto Insurance: Must have a valid driver’s license. Not available in all states.
Home and Renters Insurance: Insurance not available in all states.
Experian is a registered trademark of Experian.
SoFi Insurance Agency, LLC. (“”SoFi””) is compensated by Experian for each customer who purchases a policy through the SoFi-Experian partnership.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SOPRO-Q225-005
Read more