Leasing vs. Buying a Car

Is it time to shop for a new car? You've got plenty of decisions to make about things like the kind of car you want, the interior color, and the extra features you need. (Hello, seat heaters!) But there's one crucial question you'll need to ask yourself long before you get into those nitty-gritty details: Should I lease or buy a car?

There are advantages to both, but you'll want to take a look at a few important differences in leasing vs. buying a car before you make your decision and head to the dealership.

The Pros & Cons of Leasing a Car

What does it mean to lease a car? You don't "own" a leased vehicle. It's more like you pay a monthly fee to use the car for an agreed upon amount of time.

When you lease a vehicle, you're not paying for the value of the car itself. Instead, you're paying for the amount of depreciation (the decrease in value) that the car experiences while you have it. 

Pro: Lower Monthly Payments

One of the most significant advantages of leasing a car can be lower monthly payments. If you want a vehicle with all the latest safety and technology features, leasing might be your best bet. With a lease, you can enjoy a lower monthly payment than with a loan, AND you can drive a newer car with more advanced features for that payment.

With a lease, you can also easily trade in your vehicle for a newer one—without paying the hefty price tag for your upgrade. Leased cars are typically still under warranty, and many lease contracts state that the dealership—not you—is responsible for the cost of repairs if something goes wrong with the car.

Con: You Don't Own the Car

So, what are the downsides to leasing a car? Think of lease payments as similar to rent payments on an apartment. You're paying money out every month, but you won't have any ownership of the car (just like you don't own an apartment you've rented when it's time to move out).

Leased cars also come with mileage limits, and you'll rack up expensive fees if you go over your mileage limits during the lease term. Leasing can be a complicated transaction, especially if you're unfamiliar with common lease terminology and how the lease process works.

The Pros & Cons of Buying Instead of Leasing a Car

Pro: Making Payments Towards Your Car

If you want to own your car outright, buying it in cash or paying it off with a loan might be the best option for you. With a loan, you're financing the actual value of the car, and you pay a monthly payment (with interest) to the lender until you've fully paid for the car—at which point, you get the title, and it's yours!

Once you pay off your car loan (which can take around six years), you'll be free to sell the car any time you want, and you can use the cash to get your next vehicle. With a lease, you'll have to pay extra fees if you're going to trade the car in before the lease period is over.

Con: Down Payment & Interest Costs Add Up

Buying a car has its drawbacks, too. Since you're not just paying for the depreciation value on a car (like you would with a lease), AND you're paying interest on your loan, your monthly payments will be significantly higher when you finance.

Plus, getting a car loan generally requires that you have a hefty cash reserve ready for an initial down payment. Once you've signed a car loan, you're entirely responsible for any repair costs, and these can add up quickly—especially when you consider you'll be responsible for monthly loan payments, too.

Is It Better to Lease or Buy a Car?

What's the bottom line? Is it better to lease or buy a car? It all depends on your situation! Take a look at your monthly cash flow and your savings to see how much you can comfortably spend each month, and how much you could put toward a down payment.

When you look at your numbers, be sure to factor in monthly insurance costs, too. Regardless of leasing vs. buying a car, you'll need car insurance. With a lease, you may also need to purchase an additional type of insurance called gap insurance (this coverage protects you in case your leased car is stolen or totaled), adding yet another cost to your budget considerations.

 

Lease

Loan

What is my monthly payment like?

Lower than with a loan (even when you get a newer, nicer car!)

Significantly higher than with a lease

Do I need to have a lot of cash on hand for a down payment?

Sometimes, but it’s usually less than a loan down payment

Yes

Is there a mileage restriction?

Yes, and you’ll be charged if you exceed it

No

Who pays for repairs?

Typically, the dealership

You

Can I get any money back when it’s time for a new car?

No

Yes, you have the freedom to sell the car or trade it in to save money on your next car

Do I need car insurance?

Yes—plus additional gap coverage

Yes

Should I Lease or Buy a Car?

Think you've got it figured out? Whether you choose to lease or finance a car, Direct Auto Insurance has you covered with affordable car insurance. Call us, shop online, or come to your nearest Direct Auto location for help choosing the right car insurance so you can enjoy life in the driver's seat, worry-free!

Leasing vs. Buying: The Facts