Buying vs. leasing a car: Which route is best?

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Sign and drive. But who owns it?

© New Africa, nathamag11/stock.adobe.com; Photo illustration Encyclopædia Britannica, Inc.

Leasing versus buying a car: It’s a multifaceted decision that should be weighed carefully depending on your financial position and the total costs involved, plus, of course, your driving preferences.

The main difference between leasing and buying is pretty clear. When you buy a car, you own it, and you can keep it for as long as you like. After the monthly installment payments have all been settled, you’re on the hook for maintenance and repairs.

With a lease, you never take title (unless you buy the vehicle outright after the lease ends). But you do get a brand-new (or newish) car for the length of your lease, typically two to four years. There are some limitations, such as maximum mileage and wear-and-tear standards.

If you’re the type who always wants the most sophisticated bells and whistles that automakers are constantly adding to their makes and models—self-driving, back-up cameras, lane-departure warnings, connectivity to your devices and apps, and the hottest color trends—leasing might be the way to go.

On the other hand, if you wince at the thought of auto payments that never go away, you most likely fall into the buy-a-car column. In the long term, you’ll have to cover more upkeep costs than someone who leases a car, but you get rid of those monthly payments (assuming you’re financing your auto purchase). Leasing tends to free drivers from the hassles and costs of long-term car maintenance.

With that said, leasing typically saves money in the short term because the payments are based on the expected depreciation of the automobile. When you buy a car, loan payments are based on its full value—but could cost you much less in the long term after the car is paid off.

Whichever route you take, it’s important to remember there are other costs involved, such as fuel (or charging) and insurance.

Insurance payments are a big chunk of your monthly outlay. They depend on a number of things, ranging from your credit rating to your driving record and the make and model of the car. Many firms will offer discounts for safety features such as airbags, anti-theft systems, and anti-lock brakes.

But as with all insurance, rates are set by the likelihood of a claim and the expected cost of each claim. So if you decide to lease an expensive, exotic import, that lower monthly payment might get swallowed up by insurance costs.

Although some buyers have the financial wherewithal to pay cash for a set of wheels, that’s not how most of us operate. In fact, about 85% of new car buyers (and 40% of used car buyers) utilize some sort of financing. The escalating prices on new and used cars have forced many people to take on long-term loans that will cost more in the end thanks to interest rates. The average price of a new car jumped again in 2022 as microchip shortages and other supply issues curbed manufacturing, according to Kelley Blue Book.

Luxury autos, which made up slightly more than 18% of new-car purchases in 2022, hit another record price high at an average of $67,050; electric vehicles also rose to an average high of $65,041 as they better aligned with luxury prices. The average cost of non-luxury brands was on a steep incline, too, hitting a record $48,681. Those are big chunks of change for mobility.

Here’s what else you need to consider when buying a car:

Banks tend to charge higher interest than credit unions, but you need to join the credit union to take advantage of the lower rate. Dealerships might offer lower rates than either banks or credit unions, and could be the best bet if you have a low credit score.

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When you lease, you take on regular auto payments in exchange for the short-term commitment, lower monthly costs, and the latest technological advances in vehicles. Plus, because the cars are new, they typically require little maintenance, and warranties are usually in place throughout the course of the lease.

Those who lease often get a new car every two to four years, and they don’t have to deal with trade-in issues or selling a car on their own. Most leases offer buyout opportunities once the lease is up. That could be a good thing when inflation has jacked up the costs of new and used cars. However, there are times when those costs are higher than buying a similar car on the secondary market. The economy can be the wild card.

Before the pandemic, leasing cars versus buying them accounted for some 30% of transactions. That changed with microchip shortages and other supply issues that tamped down inventory and hiked prices, forcing many drivers to stick with what they had. As of 2023, however, leasing ranges from 15% to 20%, according to data by Cox Automotive.

Leasing considerations:

If you go over the mileage allowance, charges range from $0.10 to $0.25 a mile—a rate that could skyrocket your costs quickly. On the bright side, if you fall below the average, say, during the first year of the lease, you’re typically allowed to roll the mileage over to the next year. In effect, if you’re allotted 12,000 miles per year on a three-year lease, your total allowance is 36,000 miles.

Another potentially pricey problem is how much wear and tear you impose on the car. The lease is usually specific about how it defines standard wear and tear. Scraped bumpers, curbed wheels, and damaged upholstery, for example, could run up final charges. Be particularly attentive to tires—the treads will be checked, and it’s much less expensive to replace them yourself before the dealership does it.

For many, an automobile ranks high on the list of life’s expenses, so it’s important to think out your budget and your preferences before you decide whether to buy or lease your car. Do a gut check on what kind of driver you are and how well you take care of your autos, too—that could cost you either way.