Is it Better to Lease or Buy a Car? [Guide + Quiz]
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Many drivers feel stuck comparing lower lease payments versus the long-term benefits of ownership. A lease can save hundreds monthly while buying builds lasting financial equity. Making the wrong choice can impact your finances for years.
The right choice maximizes your financial investment while fitting your driving needs. Understanding the true costs of leasing versus buying empowers smarter decisions about car financing. Read on to compare both options and take our quiz for personalized guidance.
Table of Contents
Click below to browse the sections of our comprehensive buying vs. leasing guide.
The Difference Between Leasing And Buying A Car
Leasing and buying are two common ways to get a vehicle. When you buy a car, you pay its full price and any additional costs such as registration fees and taxes. You gain full ownership of the vehicle upon completing all payments.
On the other hand, leasing a vehicle means you pay to use it for a set time. You pay for depreciation and fees during this period. The lease ends when you return the vehicle to the owner after the agreed-upon time has passed.
How to Weigh Your Options
Deciding whether to lease or buy a car depends on your priorities and financial situation. Carefully consider the following factors to determine which option best fits your needs.
How much are you willing to spend on monthly payments?
Your monthly budget is crucial when deciding between leasing and buying a vehicle. Leases typically have lower monthly payments because you only pay for the vehicle's depreciation.
Financing a purchase means paying off the vehicle's total cost, which results in higher monthly installments. Determine what you can comfortably afford each month, and consider your overall financial goals when making this decision.
Need help budgeting for your car? Try our Auto Loan Affordability Calculator:
Do you want the latest and greatest car every few years?
Leasing offers the allure of driving a new car with the latest technology and features every few years. At the end of the lease, you can simply return the vehicle and lease a newer model. If you prioritize having the most up-to-date vehicle, leasing could be an attractive option.
How long do you plan to keep the car?
The length of time you intend to keep the vehicle plays a significant role in this decision. Leasing is generally more advantageous for shorter periods, typically two to three years. Financing makes more sense if you prefer long-term ownership and plan to drive the car for many years after paying off the loan.
How much down payment are you willing to pay?
Down payments can impact both leasing and financing in different ways. A larger down payment on a financed vehicle results in smaller loan payments. This often means lower monthly payments and reduced interest costs.
Lease agreements could require substantial upfront costs, including the first month's payment, a security deposit, and acquisition fees. However, keep in mind that you’re not building equity.
How far do you typically drive daily?
Most leases limit you to 10,000-15,000 miles per year. Going over this limit leads to expensive per-mile fees. Buying may be better if you have a long daily commute or take frequent road trips.
Will you customize or modify the car?
Vehicle modifications are generally discouraged and often prohibited when leasing. Leases typically require you to return the car in its original condition. Modifications extend beyond performance upgrades like high-performance exhausts. They can include many types of alterations that some make to their vehicles.
Potentially problematic modifications (likely need approval or may be prohibited):
Installing a trailer hitch: This significant modification alters the vehicle's capabilities and could affect its resale value. It often requires cutting into the bumper or undercarriage. This is almost certainly prohibited or requires explicit permission from the lessor.
Adding running boards or side steps: Manufacturers often bolt these onto the vehicle's frame, which could constitute a permanent alteration. Consult your lease agreement, as this mod may not be permitted without authorization.
Changing the wheels or tires (for non-standard sizes): Altering the wheel size or tire type from the manufacturer's specifications can impact the vehicle's handling, safety systems, and even warranty. You should review your terms since modifications that deviate significantly from OEM specs may be restricted.
Adding custom decals or wraps: While seemingly minor, large or difficult-to-remove decals or full vehicle wraps can affect the paint and resale value. It's best to get authorization from the leasing company before making these changes, particularly for extensive wraps.
Installing a remote start or aftermarket security system: These types of devices involve modifying the vehicle's electrical system. As such, it’s likely prohibited or requires the leasing company's consent.
Adding Apple CarPlay or Android Auto: Some older or base-model vehicles lack this feature. While aftermarket head units can provide this functionality, installing them in a leased vehicle likely violates the terms. This modification involves altering the car's electronics and dashboard. If smartphone integration is essential, ensure your selected vehicle is already equipped.
Mods That Are Generally Okay (But Still Check Your Agreement):
Adding a roof rack or cargo box: Many modern vehicles have designated mounting points for roof racks. A removable rack that doesn't damage the vehicle is usually okay. Confirm that this is allowed as per your contract.
Installing bike racks or other specialized carriers: Similar to roof racks, bike racks are typically acceptable if they are removable and don't cause damage. However, review your contract to be sure.
Adding protective film or a "bra": These are generally designed to be removable and protect the paint. This is probably okay, but confirming this with the dealership is best.
Are Car Leases Negotiable?
A common misconception about car leases is that they are set in stone. However, you can often negotiate or modify the terms with the dealership. Remember, the dealership must earn your business—not the other way around!
Here's a breakdown of what's typically negotiable and what's not:
Capitalized Cost (Selling Price): This is the most important factor. Negotiating the selling price of the car down will directly lower your monthly lease payments. This is just like negotiating the price when buying a car.
Mileage Limit: Leases have a set mileage allowance (e.g., 10,000, 12,000, or 15,000 miles per year). If you think you'll need more miles, you can negotiate a higher limit upfront. It will increase your monthly payment but be cheaper than overage charges when turning in your vehicle.
Money Factor (Interest Rate): The money factor is essentially the lease’s interest rate, and it’s based on your credit score. Those with good credit or access to special lease deals might be able to negotiate a lower money factor.
Acquisition Fee: The leasing company charges this fee to set up the lease. You can sometimes negotiate to have this fee reduced or even waived.
Disposition Fee: You’ll need to pay this at the end of the lease contract to "prepare the car for resale." You might be able to negotiate it down or get it waived entirely—especially if you plan to lease another vehicle from the same dealership.
Down Payment (Capitalized Cost Reduction): While a large down payment will lower your monthly payments, it's generally not recommended on a lease. However, the amount is still negotiable.
Trade-In Value: If you're trading in a vehicle, the value assigned to your trade-in will affect your payments. Negotiate this just as you would when buying a car.
What's Usually NOT Negotiable in a Car Lease:
Residual Value: This is the car's estimated value at the end of the term. It's set by the leasing company (often a bank or financial institution) and is generally non-negotiable. A higher residual value means lower monthly payments. However, it's based on market projections and is not something you can typically influence.
Lease Negotiating Tips
Negotiating a lease with the dealership is very similar to negotiating the purchase of a new or used car. There are four main points to keep in mind:
Do your research: Know the car's invoice price, current deals, and the going money factor for your credit score. Websites like Edmunds, Kelley Blue Book, and Leasehackr are great resources.
Shop around: Get quotes from multiple dealerships to compare offers and leverage them against each other. Don't be afraid to pit dealerships against one another to get the best possible offer, even if it means traveling a bit further to a dealer outside your immediate area.
Negotiate the selling price first: Focus on getting the lowest possible capitalized cost before discussing other lease terms. This is the most important factor in determining your monthly payment, so treat it like you're buying the car outright.
Be prepared to walk away: Don't be afraid if you're uncomfortable with the deal. There are always other cars and other dealerships. Walking away can give you more leverage if the dealer is eager to make a sale.
The Pros and Cons of Leasing vs. Buying a Car
The table below can help you decide whether leasing or financing a car is the right option.
Feature | Leasing | Financing |
Ownership | At the end of the lease, you do not own the vehicle. You must return it, buy it, or lease/buy another. | You own the car outright once you’ve paid off the auto loan. You also take possession of the vehicle title. |
Vehicle Options |
|
|
Financial |
|
|
Mileage and Maintenance |
|
|
Long-Term Costs | May be more expensive in the long run if you continuously lease new vehicles. | Generally less expensive in the long run if you keep the car for a significant period after the loan is paid off. |
Credit Impact | Lease applications typically require a higher credit score than financing. | Car financing can positively impact your credit score if you make consistent, on time payments. |
Should I Lease or Buy a Car Quiz
Do you typically drive more than 15,000 miles per year? (Yes = Buy, No = Lease, Maybe = Neutral) - Leases have mileage restrictions.
Do you like to customize or modify your car (e.g., aftermarket parts, custom paint)? (Yes = Buy, No = Lease, Maybe = Neutral) - Leases often prohibit modifications.
Is it important to you to own your car outright at the end of the payment term? (Yes = Buy, No = Lease, Maybe = Neutral) - Leasing does not lead to ownership.
Do you prefer to have lower monthly payments, even if it might cost more in the long run? (Yes = Lease, No = Buy, Maybe = Neutral) - Leases typically have lower monthly payments.
Do you plan to keep your car for more than five years? (Yes = Buy, No = Lease, Maybe = Neutral) - Buying is generally better for long-term ownership.
Are you comfortable with potentially higher maintenance costs after the warranty expires? (Yes = Buy, No = Lease, Maybe = Neutral) - Car owners are responsible for maintenance after the warranty ends.
Is building equity in your vehicle a priority for you? (Yes = Buy, No = Lease, Maybe = Neutral) - Financing builds equity, while leasing does not.
Do you want the flexibility to sell or trade in your car at any time without penalties? (Yes = Buy, No = Lease, Maybe = Neutral) - Leases have early termination fees.
Do you mind having a higher monthly payment in exchange for ownership? (Yes = Buy, No = Lease, Maybe = Neutral) - Financing has higher monthly payments but leads to ownership.
Do you enjoy driving a new car every few years? (Yes = Lease, No = Buy, Maybe = Neutral) - Leasing allows for more frequent car upgrades.
Are you comfortable with a higher down payment or upfront costs? (Yes = Lease, No = Buy, Maybe = Neutral) - Leases often have higher upfront costs.
Is it important to you to have the latest car technology and safety features? (Yes = Lease, No = Buy, Maybe = Neutral) - Leasing provides access to newer cars with updated technology.
Are you concerned about potential fees for excess wear and tear at the end of a lease? (Yes = Buy, No = Lease, Maybe = Neutral) - Leases can have fees for wear and tear.
Do you have a stable and predictable income that can comfortably handle a potentially higher monthly car payment? (Yes = Buy, No = Lease, Maybe = Neutral) - Financing often requires a higher but fixed monthly payment.
Do you prefer to avoid the hassle of selling a car when you're done with it? (Yes = Lease, No = Buy, Maybe = Neutral) - Leasing eliminates the need to sell the car at the end of the term.
Scoring:
Mostly “Yes:” Buying is likely a better fit for you.
Mostly “No:” Leasing might be a more suitable option.
Mostly “Maybe:” You're on the fence and should carefully weigh the pros and cons.
Find the Right Car Loan for You
Ultimately, your choice is dependent on your financial situation. You must consider which option would be better for you, your lifestyle, your ultimate vehicle goals, and your budget. Carefully weigh the pros and cons to make an informed decision that aligns with your needs.
When you're ready to buy a car, consider financing with a credit union like Listerhill. Credit unions often offer competitive interest rates, personalized service, and a commitment to their members' financial well-being. Explore our auto loan options today and discover how we can help you get behind the wheel of your next car!
Is your credit less-than-perfect? Click below to learn how Listerhill Credit Union offers a range of auto loans to fit any needs and budget.
