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Financial Learning Center


Buy or Lease a Car

Buy or Lease a Car?

What are the advantages and disadvantages of buying or leasing an automobile?

Buying A Car

Advantages Disadvantages
You own, or have equity in, an asset as the car loan is paid off. You are tying up cash in an asset that is losing value.
You may drive the car as much as you like without paying a per-mile fee. The car may not be worth much when it comes time to sell it.
If you are going to "run your car into the ground," buying may be the cheaper way to go. The older a car gets, the more expensive it is to maintain and the less reliable it is.

Leasing A Car

Advantages  Disadvantages 
You have the opportunity to invest the cash that you would have otherwise used for a down payment. You are making payments similar to rent and have no equity (value of the car) to show for it.
The warranty will likely extend over the full term of the lease; therefore, repair costs could be minimal. The total amount of miles you drive the car without paying a per-mile fee will be limited.
You only pay for the car for the time you use it. You may be able to drive a more expensive car that you otherwise could not afford to buy.  

Key Considerations

You can't make the buy or lease decision simply by looking at a list of advantages and disadvantages.

You need to answer some questions first. Answer the following two questions to see if you are more of a lease candidate or a purchase candidate:

  1. Do you put over 12,000 miles on your car each year? Yes No
  2. Do you intend to keep your cars for over five years? Yes No

If you answered "yes" to the above two questions, then leasing is probably not for you. If you answered "no" to one of the questions, then you need to further evaluate if leasing or buying is the choice for you.

Other factors to consider to decide if you should lease or buy include the following:

  • How much cash do you have for a down payment if you are buying, and what monthly payments can you afford on a loan? If you have sufficient cash, you may want to consider buying a car. But, even if you have enough cash to buy a car, maybe your money is well-invested, and you don't want to disrupt your investments. Or maybe you need all the cash you have and can't afford to give up enough for the down payment. If so, you may want to lease a car.
  • Do you treat your car with care and service it regularly? Or do you treat your car with a more carefree attitude? If you are hard on a car, you may want to lease and be hard on someone else's car. But be careful, leasing companies will charge you if there is excessive wear and tear on the car.
  • Also keep in mind your non-financial objectives when making your decision—e.g., if you like driving an expensive new car every two or three years, leasing may be the way you can afford it.
  • If you want to compare buying and leasing by crunching some numbers, click on the worksheet topic to get an idea of how to determine the approximate cost of buying a car versus leasing.

 

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