Leasing vs Buying Your Next Car: Compare the Pros & Cons

Lease vs. buy? It's a question a lot of people ask when they shop for a car.

A good way to answer that question is by weighing the pros and cons of leasing vs. buying. Ultimately, it depends on your budget, driving needs and comfort level with contracts. Here are some tips and next steps to help you feel more comfortable in the driver’s seat.

Lease vs. Buy Analysis: The flexibility of buying a car

Buying a car is certainly a major investment, and owning it means it's yours to do with as you please. Buying is a solid and more economical option in the long run if you plan to keep the car long after it’s paid off. Additional advantages of buying a car include:

• You have flexibility – you can sell it or trade it in whenever you want.
• The insurance rates are generally less than those for leasing.
• You can make changes to the car and not worry about breaking the terms of a lease.
• There are no concerns about excess wear and tear (which can be charged on a leased car).
• You can drive as many miles as you want, since it is not limited by terms of a lease.
• You can choose to buy a used car instead of new to save money.

You also need to consider the potential drawbacks of buying a car:

• You’ll usually have a higher down payment with higher monthly payments.
• It will depreciate at a dizzying rate, which starts when you drive it off the lot. For example, an average midsize sedan selling for $27,660 loses $7,419 of its value in the first year.
• Over the same timeframe, you’ll spend more on a new car purchase than you would leasing one. That’s because leasing only requires the buyer to pay roughly 40% of the original new car price (over a set period of years before returning) compared to 100% for a purchase.

Lease vs. Buy Analysis: Why leasing might be right for you

Leasing makes it easier for you to get more car for less money up front. You get to use a newer car for a specific amount of time while you pay monthly payments. At the end of the car lease term, you have the flexibility to turn the car back in or negotiate an option to buy. Plus, when you lease a car:

• You get to drive a new car every two to three years, which means you don’t have to worry about depreciation, and you also enjoy the latest in technology and safety features.
• There is typically a smaller down payment and lower monthly payments versus the payments for buying a new car.
• There are minimal or no repair costs, since the car is usually covered under a full service warranty during the lease period.

Leasing a car does come with some stipulations you’ll need to consider:

• You don't own the car at the end of the lease term, which means you’ll need to find a new ride.
• A lease usually involves limited monthly mileage, and you’ll be charged extra if you exceed that mileage.
• Leases are generally more expensive in the long run versus buying a car.
• You may face costly fees if you decide to end the lease early.
• If you have bad credit, you may have a harder time getting approved for a lease versus buying a car.

Driving forward with your decision.

To help you steer toward your "lease or buy" decision, consider these questions regarding your affinity for autos:

• Is your car pretty "lived in" from day to day, complete with scuff marks on the seat backs or stray french fries dotting the floor? Or do you prefer to keep your car "showroom ready" both inside and out?
• Do you use your car for long daily commutes, or like to take road trips that would tack on a few thousand extra miles a year?
• Do you like the thought of a shiny new car every few years, or do you prefer to "drive the wheels off of it?"

With those answers under your belt, here are some action items to take so you get the best deal for your money — regardless of if you decide it’s better to lease or finance a car.

• Take some time to learn more about how auto loans work, including interest rates, finance charges and how the length of the loan period affects your payments.
• Do some research on lease contract terms, conditions and fine print, as well as any additional charges (like conveyance, disposition and preparation fees).
• Use online calculators and tools to estimate the costs of loans and leases (and in many cases, a comparison of the two).
• Find out what is covered under the service warranties.
• Ask an attorney to review the loan agreement or lease contract to protect your interests.

Determining if you should buy or lease a car is a big decision. But no matter which option you choose, don’t be afraid to ask questions if there’s something you don’t agree to or understand. And always try to negotiate the best deal to benefit you and your family.