Car shopping: Buying versus leasing your next vehicle

February 01, 2023

As you weigh your options, here are key considerations to help guide your decision-making.


Should you buy or should you lease? There are many pros and cons to think about before you make your purchase.


Buying a car pros and cons

For most people, buying a vehicle is the second-most expensive item you’ll purchase, aside from a home. So before you head to the showroom, here are a few things to consider. 

Buying avoids mileage limits

The average American driver clocks roughly 13,500 annually, according to the U.S. Department of Transportation. Most lease contracts let you accrue 12,000 miles each year (36,000 over the term of a 3-year lease). And if you go over your that amount, you'll often have to pay an additional fee per mile.

Owning means you won’t be held to annual mileage restrictions. Drivers with long commutes or who enjoy taking road trips, won’t have to worry about penalties.

Buying may require higher payments

If the cost of a car down payment seems daunting, you might want to consider buying a less expensive car that’s still safe and reliable, says Rebecca Smith, officer and product manager for direct lending auto at U.S. Bank.

As a rule of thumb, aim for 20 percent down, especially for new cars, and then 10 percent down payment for an older vehicle.

Some buyers may look at the necessity of a vehicle down payment as a negative to purchasing a new car. And while it may not seem enticing, buyers who are able to do so will end up with lower monthly payments.

Buying allows for customization

If you own a vehicle, you can customize it as much as you’d like, as long as you have the budget for it. Drivers who lease do not have that luxury. Leased vehicles need to be returned in their original state, so any modifications would likely result in monetary penalizations.


Leasing a car pros and cons

Leasing is an affordable way to get into the latest model of a brand new car every few years, though the cost savings can vary depending on the market. 

According to Edmunds 17% of all cars sold in November of 2022 were leases and they predict that rate may continue to decline as inventory is slow to recover. Still, good deals can be found. 

Leasing works like a rental

When you lease, the lender owns the car and is renting it to you. You make monthly payments, drive it for a set amount of time, then return it to the dealer when the contract is up. In many cases, you have the option to buy the car at the end of the term. Or you can sign another lease for a different car.

Leasing comes with limited mileage

Most car leases have mileage caps, often around 12,000 annual miles. If you go over the mileage cap, you'll often have to pay an additional fee per mile, which usually ranges between $0.10 to $0.25. If you don’t drive a lot anyway, you likely won’t have to worry. 

Leasing only allows for normal wear and tear

Your lease agreement will note who must pay for maintenance and repairs during the term. Usually, the vehicle you’re leasing will be covered by the manufacturer’s warranty for the entire length of the lease.

Most lease agreements require you to pay for excess wear and tear. This means that when you return the vehicle at the end of the term, the lender could charge you to fix anything deemed excessive as outlined in the lease agreement. “You’re on the hook for any wear and tear the lender deems outside normal levels,” Smith says. “Keep that potential in mind, especially if you have kids or pets.”

Leasing may mean lower monthly payments

A lease can let you drive a new car with little or no down payment. And lease payments are usually lower each month than loan payments for the same make and model. That’s because you’re paying for depreciation, not the full purchase price of the car.

If you’re self-employed or you own a business, you can potentially write off your lease as a business expense. It’s worth a call to your accountant to see how leasing may offset some of your costs.

However, you’ll want to ask about specific fees if you decide to pursue a lease:

  • Lease acquisition fee: This fee covers the leasing company’s administrative costs.
  • Security deposit: A security deposit often equals one month’s lease payment. 
  • Lease early termination fee: If you end your lease contract early, this fee could come into play. 
  • Lease disposition fee: A disposition fee covers the leasing company’s costs for cleaning and selling the car at the end of the lease. 
  • Higher insurance limits: Many leases require full-coverage auto insurance. And the cost of that full-coverage insurance (which gets calculated partly based on the car’s value) rises every year. 
  • Damage fees: When you turn in your vehicle, the lender will inspect it. During this time, a representative will look over the car for wear and tear, and you may be charged if it’s in excess of reasonable use.


Need help financing your next vehicle purchase? Explore a car loan that works for you.

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