Is it worth buying or renting a car? Leasing vs. financing is a common question and an critical financial decision that many people have to make. There is no elementary, one-size-fits-all answer and must be carefully considered. On the one hand, leasing usually means lower car payments. On the other hand, purchasing means that you own the vehicle once you finish making payments on the car. There are many other variables to consider, including the amount of driving you drive and how likely you are to keep your car in good condition. Here are some tips to facilitate you figure out if buying or leasing is right for you.
This is part of our Car Buyer’s Dictionary. a series that includes all the terms you need to know if you’re buying a modern or used car from a dealer.
Car leasing
Leasing a car is similar to leasing an apartment. You sign a contract, pay a fixed price, cover a fixed mileage for a specified period of time. Your monthly lease payment depends on several factors, including the vehicle price, down payment amount and the number of miles you drive per year. As a general rule, leasing is cheaper per month than purchasing, all other factors being equal. Given how high-priced cars are – the average transaction price for a modern vehicle in 2024 is around $44,000 – lower monthly payments are attractive to many people shopping for a modern car. A recent report from Loan tree indicated that the average monthly payment for a modern vehicle loan in the fourth quarter of 2023 was $738. Some fees are much higher, while leasing fees average around $606, according to the same report.
Another leasing option is single-pay leasing. By paying for the entire lease at once, you can save a lot of money on fees, but you need to have cash on hand. It’s not for everyone. Leasing is cheaper because you don’t keep any equity. For better or worse, at the end of the lease you simply pay for any damage or excess mileage and then return the vehicle unless you redeem.
Leasing may be particularly attractive for buyers who do not drive their car very many kilometers. The fewer miles your lease covers, the lower your monthly payment can be. It’s also critical to know what the penalty fees will be for exceeding your mileage. If you decide to return the vehicle early and end your rental agreement prematurely, fees may apply.
Buying a car
In contrast, financing a car purchase results in a higher monthly loan payment than leasing, but you will ultimately own the car. You can only lease from a dealer, but you can get a car loan from a local bank or credit union, and that means you can sometimes get a better deal. Know your credit score, loan rates and get pre-approved before going to the dealership. Check Autoblog Loan calculator to find out your loan repayment options.
Benefits of car leasing
Leasing may be a good choice if…
- You don’t want to put down a huge sum of money
- You often want to have a modern car
- You don’t mind paying for the car
- You drive less than 15,000 miles a year
- Generally, you keep your cars in good, undamaged condition
- You have the right to deduct leasing from your taxes
Disadvantages of car leasing
- Mileage restrictions apply
- You don’t keep the equity in owning the car
- You are responsible for damage and excessive wear and tear
- If you don’t like the car or can’t afford the payments, early termination fees apply
- You lack the freedom to modify your car
Benefits of buying a car
Financing your car purchase may be a good choice if…
- You can afford a higher monthly payment
- You drive a lot
- You don’t need a modern car very often
- Your cars tend to develop a few dents and scratches
- At some point you want to stop making payments
Disadvantages of buying a car
- Higher down payment
- Higher monthly installments
- You are responsible for long-term maintenance and repairs, especially after the warranty has expired
With these tips, you should have a much better sense of whether leasing or buying is the right move for you. Visit Autoblog.com to learn more.
