
Getting a new car is one of the biggest purchasing decisions many people make. But figuring out whether you should buy or lease can be tricky, and your decision can affect your budget and savings for years.
About 80 percent of auto consumers pay cash or finance their new cars with loans, according to Newsday. That means a fifth of consumers forgo ownership entirely to take advantage of the benefits of leasing. If you’re looking to get a new car, it’s important to figure out which financing approach is right for you and your budget.
Buying vs. Leasing: What’s the Difference?
When you buy a vehicle, you’re either paying cash or financing the cost with a loan. Most buyers make an initial down payment and then a monthly payment including interest. Eventually buyers get complete ownership of their vehicles, which are titled in their name. There are no limits on mileage or how long the buyer keeps the car. The owner can choose what to repair and when, and can sell or trade the vehicle for its depreciated resale or trade value to help defray the cost of purchasing the next car.
When you lease a vehicle, you pay only a portion of the vehicle’s cost. Depending on your financing plan, you may have the option of not making a down payment. Typically, you pay for your use of the car every month, plus an interest rate. There are usually limits to how many miles you drive, and you typically have to make agreed-upon repairs under the terms of the lease. At the end of the lease — usually two or three years — you can decide to buy the car or get a new one.
Which Costs More?
Although monthly payments tend to be lower on a leased car than a purchased car, most experts agree that leasing ultimately costs more. When you buy a car, you eventually pay it off — and at that point, you can keep driving it as long as you’d like without monthly financing payments. And you can sell or trade it to raise cash for a new car or other expense.
But if you lease a car, you’ll have to either buy it or lease another once the agreement ends. (And if you end the lease before the full term, you may have to pay a large penalty.) Either way, you usually end up paying more than you would have if you had bought the car and continued to use it for years afterward.
Which Option is Best?
In deciding whether to lease or buy, costs aren’t all you need to think about — consider your personal priorities, too. Leasing may make sense if you want a new car with the latest features every two or three years, want lower monthly payments and plan to keep your mileage low. Buying may be right for you if the higher monthly payments are worth owning your car, in addition to being able to drive unlimited miles, customize your car and keep it for many years.
And before you decide, it’s a good idea to research the differences. This article on Edmunds.com looks at the financial differences, and SmartMoney.com and Bankrate.com offer auto-financing calculators that can help you figure out your costs of each payment method over the coming years.
Did you buy or lease your last vehicle? What advice would you share about the difference?
Comment on this article
Comments
Chris on December 20, 2011 at 4:04pm
Last year I leased my first vehicle a 2011 silverado. So far I'm happy with my decision. I'm just not looking forward to the time I have to turn it in... I think at the end of the process I want to purchase the truck. In my leasing contract it states the purchase price when lease is over and it is way lower than you can purchase a used truck that is 3 years old. This is about $4-5K cheaper than current trucks that are 3 years old.
JMC-PA on April 20, 2017 at 10:17am
I lease because of warranty coverage and price. I need dependable transportation. It's peace of mind for me. Car insurance is also discounted on the first year due to a "new vehicle" rider.
Ally on April 20, 2017 at 1:11pm
Thanks for sharing your thoughts! We're glad you've found the choice that is right for you.
Tim on April 20, 2017 at 3:00pm
I have done both, depending on how I expect to use the vehicle. For a work vehicle I have typically leased due to the dependability issue and the warranty to fix any unexpected issues. Family vehicles I either purchase in cash or finance over a fixed term. Sure, I end up with a significantly depreciated asset but I can drive for as long as I want then use it as a down payment on a new vehicle.
Ally on April 21, 2017 at 10:06am
Hi Tim, thanks for reading the blog and sharing your experience!
Aubrey on September 26, 2017 at 8:32am
I've leased my last 4 vehicles. The article is an okay scratch on the surface, but there's much more to the perks when you do a deeper dive. I've listed a few here :) 1) You pay no tax or only the % of car you use depending on how the lease is structured. You don't own the car. So this backfires a little bit too because unlike a purchase, you can't deduct it on your income taxes. 2) Depending on the manufacturer, you can get different perks. For example, Toyota will pay for all your scheduled maintenance. Honda will offer free gap insurance, so it guarantees you'll never be "under water" at the end of the 36 month lease term when you go to turn it in. This is AWESOME for negotiation, because you can push as much residual value to the end of the lease term as possible meaning your payments over the time you use the car is cheaper. Be careful though, it only works for Honda or other manufacturers if they offer gap insurance and you buy it. Push too much residual to the end with M
Beverly S. on November 3, 2017 at 8:17am
If you want to lease , what does your credit score have to be?
Kathleen J. on January 12, 2018 at 9:15am
We are so lucky here in the U S when it comes to Transportation!
Ally on January 12, 2018 at 9:53am
We couldn't agree more, Kathleen. Thanks for the reminder!
Hilda on July 1, 2018 at 11:53am
you can also BUY car at the END OF LEASE, making it much for feasible to get the car of your dreams
Chrishelle B. on July 30, 2018 at 1:29am
If there is a lease through you currently and the ex husbands name is on it and they got married how does the new husband get his name on the lease and the ex husbands name off? Refinancing?
Ally on July 30, 2018 at 2:19pm
Hi Chrishelle, if you'll give us a call at 1-888-925-2559 or chat with us online at ally.com, we'd be glad to learn a little bit more about your specific situation and discuss further.
JUAN R. on August 1, 2018 at 10:03pm
Can i refinance my car to tka some money?
Steve on October 7, 2018 at 2:05pm
Correct me if I am wrong, but are the lease payments tax deductible if you have a business?
Ally on October 8, 2018 at 12:10pm
Hi Steve, we recommend that you discuss your situation further with a tax professional.
Delaney C. on October 25, 2018 at 10:17am
How do you feel, about a person who went Bankrupt? Do you let them Finance a car?
Consuelo M. on November 12, 2018 at 6:58pm
Trying to get approved for a car I need one ASAP but my credit is very poor can u plz help
Ally on November 15, 2018 at 10:07am
Hi Consuelo, please talk with your local auto dealer to determine if you qualify for financing through your dealership and Ally. You can locate a dealer here: https://www.ally.com/auto/dealer-locator/.
Suzanne E. on March 27, 2019 at 8:27pm
I've used Ally for a couple of vehicles in the past. now shopping around for the best rate to purchase vs lease a Cadillac Escalade. Why is it so difficult to find interest rates?
Ally on April 1, 2019 at 4:22pm
Hi Suzanne, thanks for being an Ally customer! There are a variety of factors that determine a rate including term, down payment, and more. To learn more, visit your local dealership and they can walk you through your financing options. Find a dealer near you using Ally’s Dealer Locator: https://www.ally.com/auto/dealer-locator/
Debra C. on July 1, 2019 at 7:24pm
Not dead !!!!
Anthony H. on August 16, 2019 at 10:14am
I agree
Ally on August 19, 2019 at 2:57pm
Hi Anthony, thanks for reading. We appreciate your comment.
Tamara on February 17, 2020 at 2:43pm
My friend has purchased a new vehicle and didn't trade in her vehicle she is financing through your company. I would like to know if I can qualify to take over those payments and vehicle. Can you assist with this situation?
Ally on March 2, 2020 at 2:10pm
Hi Tamara, if you’ll give us a call at 1-800-545-1960 one of our team members will be more than happy to discuss your options.
kamiyah on July 3, 2020 at 4:06am
If I cash out all my checks how do I show I get steady income for a auto loan?
Dee on August 14, 2020 at 7:13am
I leased a car a week ago and now I’m upset now as I should have bought it instead. Can you change from a lease to a purchase?
Ally on August 14, 2020 at 9:09am
Hi Dee, we recommend that you contact your dealership to understand your options.
Lisa M. on September 9, 2020 at 5:28pm
Hello, Please provide assistance with me changing my car payment to the 15th of the month. I am requesting the fifteen day of each month So that I will have late fees. I have asked this same question several months in a row. Please advise as to wither or not my due date for my 2018 Honda Accord can be changed to the 15th?
Ally on September 10, 2020 at 9:57am
Hi Lisa, if you’ll please give us a call at 1-888-925-2559, or log into your account to chat with us online at ally.com, one of our team members will be more than happy to discuss your options.
Connie R. on January 18, 2021 at 12:17pm
Why am I paying taxes ?