Which is Better: Leasing a Vehicle or Buying a Vehicle

Feb 6, 2024

Navigating the financial pros and cons of buying or leasing can be a little overwhelming. The choice is a very personal decision, but we’ll help take out some of the mystery between both options! While we can’t make the choice for you, we hope that you’ll feel confident enough to make the right choice for your wallet and personal needs after reading our post.

Let’s break down some of the important points to consider when leasing or buying.

Things to Consider about Leasing:

Essentially, this is a “rental”; the leasing company holds the title and you have no ownership of the vehicle
Leasing generally offers lower monthly payments, lower up-front costs like down payments, and shorter loan terms (generally an average of 36 mos); the longer the lease term, the higher the monthly payment
Your car will always have the latest technology every few years
Leasing companies set limitations on mileage, wear and tear, and condition that must be followed or the vehicle can be repossessed; it is important to give a reasonable estimate of how many miles you expect to drive, because over-mileage numbers may assessed a fee
Your monthly payments are calculated based on the depreciation of the vehicle (based on usage, wear and tear, and age) by subtracting the estimated residual value (the expected value at the time of lease ending) from the total value of car, and your monthly payment is based on the depreciation value during your lease terms; factors such as the make/model, age, mileage, and market demand impact the depreciation rate
Leases are generally considered “Closed end leases” where the depreciation value is determined at the start of the lease, allowing you to have a better idea of what the car will be worth if you wish to buy it at the end of your lease term
Lease terms usually give you a warranty (provided you stay within the limitations and terms of agreement) to cover the car for the whole term of the lease and may also include basic maintenance and service costs as part o the plan
At the end of the term, you simply return the car to the dealer or buy the car at the end of the lease, without having to worry about the stress of selling or trade-in value
Leasing is a constant payment, and as you continue your upgraded lease, payments may continue to go up
When you return the car, you may be charged additional fees for damages, mileage overage, excess wear and tear, etc
Lower financial strain with lower payments overall, but may be slightly higher total cost to buy out the lease if you wish to keep the vehicle than purchasing it outright

Things to consider when deciding to Purchase:

Buying a vehicle outright or through a financing option is the common method of acquiring a car; it’s a pretty straightforward process and most people are very familiarized with it; you will pay a lender a set monthly cost with interest rate and tax calculated to be paid off in a specific time frame for full vehicle value (generally 3 to 5 years)
The monthly payment cost may be higher than lease terms as you’re paying interest, tax, and full value of vehicle up front
You can put down a larger down payment to reduce the monthly payments of the loan
You won’t have to turn in the vehicle at the end of your loan term; once you pay the loan off, you own the title of the vehicle outright and there will be no continual contract payments
Lender may own the title while you’re paying the loan installments, but unlike a lease, there are no restrictions on how you use your vehicle; you are free to drive any mileage amounts you please, you can modify your vehicle as you see fit, and do not have to stress as much about wear and tear from the road
Once you pay off the loan, your monthly payment is done and can be used elsewhere in your finances, or be diverted into your “vehicle repair fund” for later repairs as the vehicle ages
Once you own the vehicle, it can be traded in to apply against the value of a new car if your driving needs or lifestyle changes, which reduces the overall cost value of a new vehicle
You are not required to trade-in at the dealer you purchased it from, and can opt to privately sell the car yourself in order to net full value of the sale
The longer you own the more you’ll be spending out of pocket on repairs as the vehicle ages; there may be limited warranties and repair/service package options available in the early stages of the loan, but they usually do not extend past that once your vehicle is paid in full
Great for people who put high mileage on their car or enjoy traveling long distances, as you’re in complete control of how much you drive

While there’s no “one-size-fits-all” answer to this question, and our list of bullet points is not exhaustive, we’ve covered the basics of both vehicle term options. The biggest things to consider as you decide which option is right for you will be: your financial habits (your monthly budget, how much you can afford to pay up front) and your driving habits (how much you drive.)

There are even some wonderful calculators out there, like this one from Edmunds, available to help you compare rates for the make/model and loan term (lease vs buy) to help you get a better picture on the average total costs!

And, of course, you can always check with our trusted salespersons and finance department here at Classic if you still need help navigating vehicle make/model choices and loan options if you have any further questions.