Leasing vs Buying a New Car

When it comes to buying a new car, you have three options: purchasing it with cash, purchasing it through a loan (also known as financing) or leasing it. For most shoppers, the decision comes down to buying or leasing which will have an impact on your finances and your lifestyle. Understanding the differences will help you make the best decision for you.



The Basics

Leasing is sort of like renting a car for a fixed period of time.
When you lease, you’re paying for the value of the car you use up during your term, plus interest. What’s left is known as the depreciated value of the vehicle.

  • You lease a car for a fixed term—typically two to four years
  • An initial deposit is often required
  • You make monthly payments to continue using the vehicle
    Financing is buying a car through an auto loan.
    You can finance a car through the dealership or through a financial institution like your credit union.

  • Loan terms can range from two to seven years
  • An initial deposit is often required
  • Your monthly payments go towards repaying the balance of the loan plus the interest

    Leasing vs Financing

    OwnershipYou don’t own the vehicle—you pay to use the vehicle during the term of the lease and must return it at the end of the lease unless you choose to purchase the vehicle.You own the vehicle free and clear after your financial obligations are met—it will be yours to keep, sell or trade in on your next vehicle.
    PaymentsBecause you’re not buying the whole car, monthly payments are generally 30% to 60% lower when you lease.Monthly loan payments are higher because you are paying for the entire purchase price of the car.
    MileageThe typical mileage limit on a lease is 10,000 miles per year; however, most people drive at least 15,000 miles per year—this can translate into extra fees at the end of your lease. Mileage limits are not a problem—you can drive across the country if you want, as it’s your car; however, as you put more miles on your car, the resale value decreases.
    Wear & TearSince a leased car is a borrowed car, excessive wear and tear will be held against you and may cost you at the end of your lease.There are no charges for vehicle wear and tear; however, excessive wear will lower the vehicle’s trade-in or resale value.