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Leasing vs Buying a Car: Pros & Cons of Each

Leasing vs Buying a Car: Pros & Cons of Each
Susan Guillory

Susan Guillory

Updated October 22, 2021
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In the market for a new vehicle? You may be wondering, is leasing a car a good idea? Or is it better to buy?  When it comes to leasing a car versus buying a one, you’ll find experts on both sides of the fence. Here, we’ll look at both options as well as the costs involved in each (such as car loan interest) so you can understand which is the better financial decision for you in the long term. Recommended: Car Loan Terminology

Buying vs. Leasing a Car: Major Differences

When it comes time to get a vehicle for yourself, you have two options: you can purchase it outright, by trading in another car, taking out a loan, paying cash, or a combination of all of those. Or you can lease the vehicle. When you consider leasing vs. buying a car, there are some key differences. With a lease, you have the car for a certain period (usually 24 to 48 months). At the end of that period, you can surrender the car to the company you leased it from or buy it through a purchase option.If you take out a loan to buy a car, you’ll follow a car loan amortization schedule where you pay both principal and interest over a fixed period of time (usually up to 84 months). The car is yours in full when you’ve paid off that loan. You can keep it as long as you want, sell it, or trade it in for another car down the road.Here’s a summary of key differences in leasing vs. buying a car.

Pros and Cons of Buying a Car

The benefits and drawbacks of buying a car will depend on the type of situation that best suits you. But before you can answer the question, is leasing a car worth it, you should at least consider what buying one looks like.

Pro: You Own the Car Once You’ve Paid Back the Loan

Depending on the car loan terms you get, you could pay your car off in just a few years, and then it belongs to you. You can keep it for as long as it runs, trade it in for another vehicle, or sell it. That’s not the case with a lease.

Pro: You Can Refinance for a Better Rate

When you’re considering whether to lease or buy a car, think about the interest you pay. With a car loan, you’re locked into a certain rate. However, should rates go down or if you qualify for a lower rate, you could refinance and pay less. You can’t do that with a lease.On the other hand, refinancing an auto loan with bad credit may result in you paying more in interest over the long run. Though you could lower your monthly payment, look at what you’ll pay over the whole life of the loan before you decide.

Pro: You Have No Mileage Restrictions

Unlike with a leased car, a car you bought can be driven to your heart’s content. Hello, road trips! If you have a lengthy commute for work, you won’t have to calculate how long you can make that trip before excess mileage fees kick in.

Con: It Deteriorates in Value Quickly

As they say, your car loses value the second you drive it off the lot. When you decide to sell it, you’ll typically get much less than you paid for it. And you could find yourself with an upside down auto loan, which means that you owe more than the car is worth.

Con: You’re Stuck with the Loan Until You Pay It Off

If the day comes when you find you can’t afford your car loan, your options will be limited.You could consider getting someone else to take over your auto loan, though the process isn’t a simple one.You may be best off limiting the time during which you’re paying back the loan as much as you can. When shopping for a car loan, consider the shortest period you can afford to repay the loan so you pay less in interest.

Con: You’re on the Hook for Maintenance

While many car leases have warranties, if you buy a used car and something goes wrong, you’re responsible for getting it fixed and covering those costs. Consider how much the average repair is for a car you want to buy. High-end vehicles will typically have higher repair costs.

Pros and Cons of Leasing a Car

So, is leasing better than buying, then? There are still more factors to consider.

Pro: Your Monthly Payments May Be Lower

Typically a car lease has a lower monthly payment than a loan, since you aren’t buying it outright but rather “borrowing” it for a few years. That’s great if you have a limit for what you can spend.

Pro: At the End of the Lease, You Have Options

If you love driving newer cars, with a lease you can get a new leased vehicle each time your old lease ends. You also have the option of buying your vehicle outright. Knowing its history, you can be assured that it’s been treated well!

Pro: The Car is Always New(ish)

When you buy a vehicle, you might keep it for 10 or more years to get the value out of it, but that means you risk it breaking down. Since leases are usually not longer than four years, there’s less likelihood that your car will break down, and if it does, it’s likely covered by a warranty.

Con: You Might Be Penalized for Early Payoff

It’s not always the case, but if you want to end your lease early and pay it off, there may be a penalty fee, which is not necessarily the case when you’re paying down your car loan faster. Read the fine print before signing a lease to understand all the fees and penalties you might have to worry about.

Con: You Have No Asset 

At the end of the lease, you have no asset to show for the years you’ve paid for your car. If you want to buy a car next, you won’t have a vehicle to trade in, so you’ll have to pay (or borrow) the full amount, which can be expensive.

Con: You’re Limited in Mileage

If you drive a lot, check the mileage restrictions in your lease before signing. Many leasing companies charge a fee if you go over that number, so you could end up paying more than you planned if you have a long regular commute.

Deciding What's Best for You

Given that there are benefits and drawbacks to both leasing and buying a car, is it better to lease or buy a car? So much depends on your individual situation, so only you can answer that. Ask yourself these questions as you consider your answer.
  • How much can I afford to pay each month?
  • Do I want an asset I can trade in or sell later?
  • Is it important to me to have a newer vehicle?
  • Is paying off an auto loan fast necessary?
  • How long do I want to keep my car?
  • What kind of rates would my credit qualify me for?

The Takeaway

When it comes to leasing vs. buying a car, the more thought and research you put into the process, the better the decision you’ll make.Ready to refinance your car loan? Lantern by SoFi can help. Fill out one simple form to get offers from multiple lenders in our network. 
Photo credit: iStock/PatriciaEnciso
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.SOLC0821144

About the Author

Susan Guillory

Susan Guillory

Susan Guillory is the president of Egg Marketing, a content marketing firm based in San Diego. She’s written several business books, and has been published on sites including Forbes, AllBusiness, and Cision. She enjoys writing about business and personal credit, financial strategies, loans, and credit cards. Follow her on Twitter @eggmarketing.
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