Pros and Cons of Leasing vs. Buying a Car
Whether you’re moving to a city without reliable and affordable mass transportation, starting your first job, or expanding your family, the decision to add a new vehicle to your life is a big one. A new or used vehicle is one of the most significant expenses individuals and families incur, other than housing costs.
If you don't want to deal with an auto loan or you find it too daunting to save up for the full price of a car, you may want to consider leasing a vehicle. Leasing a car is not for everyone, though.
The Pros and Cons of Leasing a Vehicle
Lower monthly payments
Option for a new car every 2–4 years
Always under warranty
No worries about trading or selling later
Requires a stable and predictable income source
Limitation on how many miles you can drive
Required to stick to the maintenance schedule
Gap insurance usually required
Usually more expensive over the long haul
Pros of Leasing a Vehicle Explained
- Lower monthly payment: If you’re looking to keep your monthly expenses low, a lease might be a good option for you. A typical car lease payment can be up to 60% lower than your monthly payments would be if you were purchasing the same vehicle and financing it with a traditional personal auto loan.
- The warranty is also a huge plus: It can be incredibly frustrating when your newly purchased car has a major mechanical problem shortly after the warranty runs out. With a lease, you never have to worry about any mechanical failures. No matter what, you’ll be covered.
- You're not responsible for selling the car: When your lease is up, you don't have to go through the time-consuming resale process. Cars depreciate quickly, and they’re rarely an investment unless you’ve purchased a rare or classic car. You can jump right into a new leased vehicle and leave the sales hassle to someone else.
- A new car every few years: Leases generally run for two to four years, and when they expire, you are eligible to sign a lease on a new car.
Cons of Leasing a Vehicle Explained
- A reliable source of income: Making monthly payments throughout the life of your lease does require a stable and predictable lifestyle—or at least a stable and predictable source of income. Losing your job or incurring a major medical expense can upset your finances, so it’s important to have a backup plan in case something happens. When you have a lease, it is harder to get out of the contract than it might be to sell a used vehicle.
- Mileage limitations and other restrictions: Leases also have lots of terms you have to meet, or you will have to pay steep fees. Simple things like driving too many miles or procrastinating on regular maintenance can cost you a lot of extra money. You might also be required to carry gap insurance. If you do decide to take on the responsibility of a lease, make sure you read the fine print!
- Long-term leasing will cost you more: It’s also important to realize that because having a lease has a lot of great perks, you’ll often pay more in the long run for a comparable vehicle if you lease it rather than buying it. While selling a vehicle is seldom a money-making operation, you’ll at least get something in return for your vehicle rather than driving (or walking) away with nothing once your lease is up.
The Pros and Cons of Buying a Vehicle
You own your car after you've paid off the lease
Drive as many miles as you want
Customize your car
Build trade-in or resale value
Spread the cost over a longer period
No risk of lease-end charges
Higher monthly payments
Unexpected post-warranty repair costs
You're responsible for trading or selling your car
Pros of Buying a Vehicle Explained
- You own your car: Ah, the ability to do whatever you want whenever you want with your vehicle, without the fear of additional fees—it is a great feeling. Even if you have a loan, the car is yours to do with as you wish.
- No mileage or other restrictions: When you own your car, you can drive as much as you want and customize to your heart's content.
- Lower long-term cost: As long as you are committed to driving your vehicle for an extended amount of time and have adequate car insurance coverage, you are unlikely to lose out financially. There are also no fees when your loan runs out, as there are with leases.
Cons of Buying a Vehicle Explained
- Higher monthly costs: With a loan, you're paying for the full value of the car over a few years, and you own the car. This means your monthly payments are usually higher than a lease.
- Post-warranty repairs: When you own a car past its warranty expiration, the costs of all repairs fall on you.
- The hassles of reselling: You’ll be responsible for trading or selling your used car if you want a different one.
Car Insurance Is Always Required
Did you think that leasing a vehicle would exempt you from purchasing auto insurance? As you can see from the above, you were wrong! You’ll often have to buy a much more boutique policy if you lease a vehicle than you would if you purchased a vehicle and opted to purchase your state’s minimum liability coverage (though you can only do that if you own your car outright). Regardless of whether you decide to lease or buy a car, it’s vital that you consult a reputable insurance provider or insurance agent to figure out the type of coverage that’s best for you.
Short Term vs. Long Term
The cons of buying a vehicle are minimal and accepted as a typical cost of American life by most people. Leases are cheaper in the short term, but in the long run, purchasing a vehicle is typically less expensive. Weighing the pros and cons will help you come to the decision that is right for you and your family.
Board of Governors of the Federal Reserve System. "Keys to Vehicle Leasing: Frequency of Changing Vehicles." Accessed March 28, 2020.
Board of Governors of the Federal Reserve System. "Keys to Vehicle Leasing: End of Term." Accessed March 28, 2020.
Consumer Financial Protection Bureau (CFPB). "What Should I Know About the Differences Between Leasing and Buying a Vehicle?" Accessed March 28, 2020.
Board of Governors of the Federal Reserve System. "Keys to Vehicle Leasing: Mileage." Accessed March 28, 2020.
Board of Governors of the Federal Reserve System. "Keys to Vehicle Leasing: Future Value." Accessed March 28, 2020.