Car Leasing vs. Car Buying

Car Leasing vs. Car Buying

There are many different factors to mull over when deciding whether to lease a car or buy a new car. The processes of each are very different, with car leasing potentially being the more confusing of the two due to its vast terminology. However, below are some simple comparisons to help you decide which avenue is best for you.

Car Ownership

CAR LEASING: When you lease a car, you do not own the vehicle. A leasing company usually owns the vehicle, and lets you "rent" it over a specified period. You get to use it but must return it at the end of the car lease unless you choose to buy it.

CAR BUYING: You own the vehicle and get to keep it at the end of the term.

Up-front Car Costs

CAR LEASING: Up-front costs may include the first month's car payment, a refundable security deposit, a capitalized cost reduction (like a down payment), taxes, registration and fees, and other charges.

CAR BUYING: Up-front costs include the cash price or a down payment, taxes, registration and fees, and other charges.

Monthly Car Payments

CAR LEASING: Monthly car lease payments are usually lower than monthly car loan payments because you are paying only for the vehicle's depreciation during the car lease term, plus rent charges (like interest), taxes, and fees.

CAR BUYING: Monthly car loan payments are usually higher than monthly car lease payments because you are paying for the entire purchase price of the vehicle, plus interest and other finance charges, taxes, and fees.

Early Termination

CAR LEASING: You are responsible for any early termination charges if you end the car lease early.

CAR BUYING: You will be subject to a buy-out charge if you end the car loan early.

Vehicle Return

CAR LEASING: You may return the vehicle at lease end, pay any end-of-lease costs, and "walk away."

CAR BUYING: You will have to sell or trade-in the vehicle when you decide you want a different vehicle.

Future Value

CAR LEASING: The lessor has the risk of the future market value of the vehicle.

Mileage

CAR LEASING: Most car leases limit the number of miles you may drive (often 12,000-15,000 per year). You can negotiate a higher mileage limit and pay a higher monthly payment. You will likely have to pay charges for exceeding those limits if you return the vehicle, usually 10 to 15 cents per mile.

CAR BUYING: You may drive as many miles as you want, but higher mileage will lower the vehicle's trade-in or resale value.

Excess Wear

CAR LEASING: Most car leases limit wear to the vehicle during the lease term. You will likely have to pay extra charges for exceeding those limits if you return the vehicle.

CAR BUYING: There are no limits or charges for excessive wear to the vehicle, but excessive wear will lower the vehicle's trade-in or resale value.

End of Term

CAR LEASING: At the end of the car lease (typically 2-4 years), you may have a new payment either to finance the purchase of the existing vehicle or to lease another vehicle.

CAR BUYING: At the end of the car loan term (typically 4-6 years), you have no further car loan payments.