Leasing vs. Buying a New Car: Which Is Better?

People are divided in the debate on buying versus leasing a car, but your personal circumstances and preferences ultimately determine the best option. If you like driving new cars and keeping up with the latest models, leasing might be more appealing as you can change your ride more frequently. But if you like to feel like a car is “yours” and don’t mind keeping it for a longer time between flips, buying could be the option for you.

Let’s look a little deeper into the pros and cons of leasing versus buying a car!

The Pros of Leasing a Car

If you are trying to keep your monthly costs lower, leasing a car might be for you. Leases tend to offer lower payments every month rather than buying the same model of car. Plus, beyond what you will be paying throughout your lease, the initial price tag might not be as shocking. Indeed, you might not even have to put money down to drive the car off the lot! While you have the keys, the car is covered by warranty protections which typically last for the first three years, or 36,000 miles, whichever occurs first. The following are some of the specific pros when it comes to leasing a car.

Lower Monthly Payments

Additionally, having a predictable monthly payment with no surprise costs can make it easier on a household budget. Your payments can also include delivery, breakdown, and road tax. Fixed monthly payments are typically much lower than the loan payments associated with buying a car.

Lower Drive-Off-The-Lot Fees

While you will commonly need a deposit for leasing a car, the initial fees are definitely lower for leases than for purchases. A down payment potentially is not even necessary for the lease. Additionally, you can claim the lease cost for a tax deduction if your car is used for a business you own.

Better Warranty Protection

The manufacturer’s warranty will cover your car, and it may also cover oil changes and other scheduled maintenance. Typical lease warranties will last for the first three years or 36,000 miles.

Ability to Drive the Latest Model

Because you are driving a new car every two to three years, you don’t have to worry about it breaking down from age. You get to drive the vehicle during the most trouble-free years of its life. Additionally, you can drive a higher-priced and better-equipped vehicle than you otherwise might be able to afford, allowing you to opt for safety features that aren’t available in lower-cost models or used cars.

Lack of Depreciation

Because one of the biggest issues with owning a car is the risk of depreciation, leasing removes that consideration altogether. Costs of depreciation are often factored into your monthly lease payments rather than remaining with the car dealer.


With leasing, you don’t have to worry about fluctuations in the car’s trade-in value or have the hassle of selling the vehicle when you no longer want to drive it. Plus, at the end of the lease, all you have to do is drop off the car at the dealer!

The Cons of Leasing a Car

Though leasing a car has many benefits, you will often pay more in the long run for the vehicle, with additional fees and penalties. The following are some of the cons to having a car lease. 

Higher Rates and Extra Fees

Because you do not own the vehicle you’re driving, you can expect extra fees. The dealer will charge extra for damages to the car and excess miles. Because lease contracts specify a limited number of miles, if you go over that limit, excess mileage penalties kick in that can range from 10 cents to 50 cents for every additional mile traveled. Additionally, to cover the insurance gap for the dealer and driver, the insurance rates on leased cars tend to be higher.

Constant Payments

If you lease one car immediately after the other, which is common for people who rely on leased cars for transportation, the monthly payments will virtually go on forever. Plus, if you want to end the lease early, charges can be just as costly as sticking with the contract. 

You Must Have Stable Income

Making the monthly payments throughout the extent of your lease requires a predictable and stable source of income. Additionally, if you rely on borrowed money or a credit agreement to lease a car, your credit rating must be adequate to secure the lease, which can be problematic for some people.

The Pros of Buying a Car

There are plenty of benefits to buying a car, the principal one being that every payment goes toward owning your vehicle outright. After paying off the loan, you can choose to drive the vehicle without any further payments, trade it in for a new model, or sell the car for a good resale value that can help recuperate some of your initial expenses.

Early Termination

You can sell or trade-in your vehicle at any time when you own it. If you have a loan attached to the vehicle, you can use the money from the sale to pay off the remaining balance, if necessary. You will have to handle the entire sale or trade-in process yourself, but that also gives you the freedom to negotiate prices, and the entire cash value of your car is all yours.

Freedom in Mileage

When you own your car, there are no constraints to how far you can drive it. Without mileage limits, you can take a long road trip without worrying about fees being applied to each mile you travel. The only thing you will have to consider is the price of gas.

Customization and Upgrades

With ownership of your car comes the ability to make changes to it. You can freely customize and upgrade a vehicle that you have purchased, meaning that whatever you want to alter is fair game. Making the car completely your own is entirely possible when you own the vehicle. You are not constrained to strictly removable aesthetic additions such as bumper stickers and license plate frames—change up the upholstery or the entire color if you feel like it!

The Cons of Buying a Car

With higher monthly payments than leases, and a warranty that runs out, purchasing a car can be more difficult. Here are some of the cons to buying a car. 


Though the owner keeps any equity built up after buying a car, the car will lose a significant amount of value over time. Depreciation is one of the biggest issues in purchasing cars, and it is your burden as the car owner. As soon as you drive the car off the lot, depreciation begins and is reflected in the car’s resale price.

Higher Monthly Payments

Car loan payments are typically higher than monthly lease payments. Because you are paying off the entire purchase price of the vehicle, plus interest and other finance charges, taxes, and fees, the monthly payments will inevitably be more costly when you purchase a vehicle with a loan. The length of the loan also determines monthly payments, but the longer the loan, the riskier it is for the car’s overall value.

Post-Warranty Repair Costs

Your maintenance costs will inevitably increase the longer you own your car. After your warranty is at an end, any repair costs will come out of your pocket. Additionally, if you have purchased a used car from a private seller or an unreputable dealer, there can be uncertainty about the vehicle’s history, and hidden repair costs can arise.

Buy or Lease? Long Loans Versus Leasing

Some car buyers will opt for long-term loans to get a lower monthly payment, often stretching to six or eight years. But these can be risky because long loans make it simple to get “upside-down” in your loan—meaning that you owe more than the car is worth. If you cannot pay off the loan difference on an “upside-down” loan, you can often roll the remainder into a new loan, but this means you will be financing the new car and the remainder of the old loan.

If you need to get rid of a car early, or it’s stolen or destroyed, the trade-in, resale, or insurance value might be higher with a long loan. Similarly, if you want to drive a new car model every few years, buying a car with a long loan is not advisable, as the early trade-in will leave you paying finance charges much higher than principal.

In general, if you want to have lower monthly payments and drive new models every couple of years, leasing might be worth the additional cost—make sure you can afford wear and tear costs, and the limitations on mileage won’t hinder you.

Leasing a Car: Credit Score Considerations

Your credit score has direct implications for leasing a car. As a rule of thumb, if you have a good credit score, you will have more bargaining power with leases and will likely get a better rate if you demonstrate you can handle money wisely. Before you start shopping for leases, check your credit and fix any mistakes. But if you have a bad credit score, there is still hope—vehicle leasers tend to be more likely to approve you even with a bad credit score than other finance providers. Lease approval rates are typically relatively high, so it might be a good alternative to paying upfront for a car purchase.

Buying a Car: What About Cash?

If you are looking at buying a car and have enough savings to cover it, purchasing it with cash is generally a good idea. You will own the vehicle outright from day one, so you can do what you want—drive as far as you’d like, modify and customize the car, or sell it. Because there are no interest or admin fees with cash payments, it can be cheaper; if you have a poor credit rating, you don’t have to worry about borrowing money or taking out a credit agreement.

Financial advisors tend to agree that if you plan to purchase a vehicle and drive it until it is no longer economical to repair, using cash is the better option. But if you are planning to sell the car within a few years and buy a newer model, cash buyers might find that their car has lost significant value due to depreciation.

Questions to Ask Before Leasing or Buying a Car

You might still be wondering about the best option for you and your circumstances—should you lease or buy your next vehicle? Beyond the pros and cons for each, here are some questions to ask yourself that might help narrow your decision down.

  • Do you want to own the car at some point?
  • What make and model of car do you want to drive?
  • Does your chosen car depreciate quickly or hold its value?
  • Do you want a new car or a used car?
  • Do you have enough savings to purchase outright?
  • Do lease payments fit into your monthly household budget?
  • Are you confident you can afford monthly payments for the duration of a lease term, typically two or three years?
  • How many miles do you think you will be driving every year?
  • Do you want to upgrade your car regularly?
  • Do you want to make alterations and customizations to your car?
  • Is your credit rating high enough to secure a lease deal?
  • Can you claim VAT through a business you own by using a vehicle for it?
  • What is the difference in insurance costs for a bought vs. leased vehicle?

If you found this helpful, check out our new versus used cars article.