Should you lease your next car or buy it? Both can be smart deals. The right choice depends on how much you drive, how long you keep cars and how you want to spend your money each month.
How leasing works
A lease is like a long-term rental. You pay for the car’s expected loss in value during the lease term, plus interest (called the money factor) and fees. At the end, you return the car or buy it for a set price.
- Lower monthly payments than a loan on the same car
- A newer car every two to four years
- Repairs usually covered by the factory warranty
- Mileage limits, often 10,000 to 15,000 miles a year
- Charges for extra miles and excess wear
How buying works
When you buy, you pay the full price, either in cash or with a loan. Once the loan is paid off, the car is yours and you have no payment at all.
- You build equity and own an asset you can sell or trade
- No mileage limits or wear-and-tear charges
- Freedom to customize the car
- Higher monthly payment while the loan is active
- You handle repairs once the warranty ends
Leasing may be better if you
- Drive a predictable, moderate number of miles
- Like having the latest safety and tech features
- Want a lower monthly payment and do not mind always having one
- Use the car for business and can deduct part of the lease (ask a tax professional)
Buying may be better if you
- Drive a lot of miles each year
- Keep cars for six years or longer
- Want to stop making payments eventually
- Have kids, pets or a job that is hard on interiors
Compare the total cost
Do the math over the same period. For example, compare two back-to-back three-year leases with a six-year loan on the same car. Add up every payment, fee and down payment. Then subtract the car’s expected resale value at the end of the loan. The option with the lower total cost is the better deal on paper.
Tips for getting a good lease deal
- Negotiate the vehicle price (capitalized cost) just as you would when buying.
- Ask for the money factor and multiply it by 2,400 to see the equivalent interest rate.
- Avoid large down payments on a lease. If the car is totaled early, that money can be lost.
- Look for manufacturer lease specials, which are often advertised on popular models.
Ready to compare offers? See our latest car deals and learn how to negotiate a new car price.
