Is it better to lease or buy a new car? Ask most people and they'll probably tell you that car buying is the way to go. And from a financial perspective, it's true, provided you're willing to make higher monthly payments, pay off the loan in full and keep the car for a few years. Leasing, on the other hand, can be a less expensive option on a month-to-month basis. It's also good if you're someone who likes to drive a new car every three years or so.
Since everyone's situation is different, here are the pros and cons of leasing and the pros and cons of buying. Some of these points are financial factors and others relate to your needs and lifestyle. Keep in mind that there isn't always a perfect answer to the question of whether to lease or buy.
- You have lower monthly payments with a low — or no — down payment.
- You can drive a better car for less money.
- You have lower repair costs because you are under the vehicle's included factory warranty.
- You can more easily transition to a new car every two or three years.
- You don't have trade-in hassles at the end of the lease.
- You pay less sales tax.
- You don't own the car at the end of the lease (although there is always the option to buy).
- Your mileage is typically limited to 12,000 miles a year (you can purchase extra).
- You may find lease contracts confusing and filled with unfamiliar terminology.
- You'll pay more in the long run for a leased car than you will if you buy a car and keep it for years.
- You could face excessive wear-and-tear charges. These can be a nasty surprise at the end of the lease.
- You will find it costly to terminate a lease early if your driving needs change.
- You can modify your car as you please.
- You'll save money over the long term if you buy a car.
- You can drive as much as you like. There's no excess mileage penalty.
- You have more flexibility since you can sell the car whenever you want.
- You can use the car as a trade-in on the next car you buy.
- You have to pay a higher down payment to avoid being upside down in the loan (owing more than the car is worth).
- Your monthly car payments are higher than lease payments.
- You're responsible for repair costs once the warranty expires.
- You face possible trade-in or selling hassles when you decide to get your next car.
- You'll have more of your cash tied up in a car, which depreciates in value.