Leasing vs. Buying a New Car

When choosing between leasing or buying a car, the decision might not be a super easy one. There are many arguments for you to lease vs. buy a car, including lower monthly costs and the ability to trade in the vehicle at the end of the lease term if you choose. However, buying a car gives you the advantage of owning an asset and allows you to eventually stop making car payments. Overall, one decision will be right for some folks, but not all. 

No matter which option you choose, your vehicle must be protected by the right coverage. An independent insurance agent can help you get set up with all the car insurance you need. But for starters, here's a breakdown of the pros and cons of leasing vs. buying a new car.

What’s the Difference between Leasing a Car vs. Buying?

When you buy a car, you can either pay the full amount upfront and immediately own the vehicle or choose to make monthly payments towards a principal balance that will lead to you eventually paying off and owning the vehicle. When you lease, you can typically pay a much lower monthly amount in exchange for your use of the vehicle, which you're basically borrowing for a specified term. The amount you pay towards a lease is calculated by the dealership, which is just looking to make up the difference between the original value of the vehicle and its projected residual value when the lease term is over, in addition to extra finance charges. If you've been wondering whether it's better to lease or buy a car, you might find that leasing really is the better option for you.

Leasing a car vs. buying has some differences that are critical to understanding before you ultimately choose which one you think works best for you. The difference between leasing and financing is that if you finance a vehicle loan, you'll eventually own the car because you're making monthly payments toward its principal balance, but with a lease, you're only paying to borrow the car for a while. So, you can get financing through your dealership for a lease, but at the end of the term, you don’t own the car outright as you would if you financed a car to buy.

Pros and Cons of Leasing a Car

Is leasing a car a good idea? For some folks, definitely. Leases can offer the benefit of much lower monthly payments, for starters. Payments for a leased vehicle are almost always made to the car dealership you lease the car from. In addition to the agreed-upon monthly payment for the vehicle, taxes, title fees, and other dealer fees are typically due at signing. Sometimes a down payment is also required upon signing for the vehicle.

However, leasing does have certain restrictions, including mileage. A lease term's mileage restrictions dictate how many miles the lessee is allowed to drive the vehicle within the term. But mileage restrictions can be negotiated into the term of the lease (i.e., a lower mileage agreement can decrease the monthly payment). You might also determine your best course of action is to lease a preowned car.

Pros of Leasing a Car

Reviewing all the pros and cons of leasing a car can greatly assist you in deciding if this is the right course of action to take with your next vehicle. For many drivers, leasing provides a convenient and affordable way to gain access to a car for a set amount of time. Here are some of the major pros of leasing a car:

• Lower payments: Lease payments aren't being made toward the car's purchase price, so they're much cheaper than if you buy and finance a car.
• Less money down: Because the overall financing for a lease is cheaper, so is the initial payment when signing the contract.
• Manufacturer warranty: Leases honor the vehicle's manufacturer warranty in case of any issues.
• Option to get a new car every few years: Perhaps one of the most attractive benefits of a lease for many folks is that they allow drivers to try out a new vehicle every few years.
• Driving a late-model, better-equipped vehicle with the latest safety features: Leasing allows some drivers access to more expensive vehicles than they may be able to purchase outright or secure loans for.
• No resale worries: Because you don't own a vehicle at the end of the lease term, you'll never have to worry about reselling it and that whole process.
• Potential for tax deductions: This applies to drivers who use their leased vehicles for business purposes. Those who lease their vehicles may be able to receive greater tax deductions than those who finance and plan to buy their vehicles since you can deduct depreciation and financing costs.

Cons of Leasing a Car

There are some possible drawbacks or turnoffs for some drivers when it comes to leasing vs. buying, which is why it's helpful to review all the pros and cons of leasing a car before you decide. Become familiar with these cons to leasing a car so you can better weigh your options of leasing vs. buying:

• Mileage restrictions: One of the biggest potential drawbacks of a lease is that the dealership determines how many miles you're allowed to drive the vehicle without facing additional costs.
• Additional costs/fees: Additional mileage and wear and tear of the vehicle are just a couple of ways a dealership can tack on extra costs and fees to your lease.
• Difficult to exit the lease: A lease is a contract, and it's a very difficult one to break. Before signing a lease, you'll want to be absolutely certain it's what you want.
• No ownership: Obviously, if you lease a vehicle, you won't be able to call the car your own. You're technically only borrowing it.
• No option to make modifications: Since you don't own the vehicle, you won't be able to make any customizations or modifications that may better fit your style or preferences.

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Pros and Cons of Buying a Car

Now that you're familiar with the pros and cons of leasing a car, it's time to weigh the pros and cons of buying a car. Overall, the biggest difference with buying a car from leasing is that at the end of the payment terms, whether you’re buying outright or financing, you will maintain possession of the vehicle. There are also more financing options when buying a car instead of leasing. Naturally, paying with cash or buying outright is an option, but when financing, you can shop around for the best rates from local banks and credit unions, online lenders, and the dealership.

Though leasing a vehicle provides a greater sense of freedom for some drivers, for others, it's the opposite. Buying a car allows you to customize and modify it however you like, for starters. Also, it can provide a sense of gaining traction for some folks as they make monthly payments toward a principal balance on a loan, knowing that each payment is getting them one step closer to eventually owning the car. 

Pros of Buying a Car

Just as there are pros and cons of leasing a car, there are also pros and cons of buying a car. Here are just a few of the most commonly cited benefits of buying a car instead of leasing:

• No restrictions: While a lease sets strict limits on your allotted mileage and overall wear and tear of the vehicle, when you own a car, you don't have these restrictions. You can drive it as far or as little as you like every single day you own it.
• Modify the car’s appearance: Owning a vehicle allows you the freedom to customize its appearance, including changing the paint job or tinting the windows as you see fit.
• Sell or trade in the vehicle as you desire: When you own your vehicle, you can sell it or trade it in for another model whenever you want. You don't have to wait for a lease term to be over to switch.
• Potential tax deductions: Buying a car offers the benefit of writing off the sales tax from the purchase on your next tax return.
• Long-term cost: Making monthly payments toward a principal balance, without any hidden or extra fees from a dealership, can lead to a lower long-term cost overall when you buy a vehicle instead of leasing one.

Cons of Buying a Car

Make sure to review all the pros and cons of leasing a car, as well as the benefits and drawbacks of buying a car, before deciding which one is right for you. Because just as there are some clear advantages to purchasing a vehicle, there are also a few possible negatives, including:

• Rapid depreciation: Though some folks think of buying a car as an investment, the truth is that cars rapidly depreciate in value starting the moment you drive them off the lot. That means you're essentially losing a lot of money from the start.
• Higher monthly payment: When you finance a car through a loan instead of leasing it from the dealership, you'll be making higher monthly payments toward the principal balance, which can put a strain on some folks.
• Larger down payment required: Buying a car instead of leasing also tends to require a larger down payment, which can also be a bit of a roadblock for some drivers in need of a vehicle right away.
• Long-term maintenance costs: Since you'll own a vehicle you buy for much longer than one you lease, typically, you can expect to pay much more toward the vehicle's maintenance throughout its lifespan.

Whether You Buy or Lease — Make Sure You’re Covered

Hopefully, now you're able to make a better-informed decision about leasing vs. buying a car. Perhaps you will choose to lease vs. buy a car because of the benefits of leasing, or the freedoms that come with purchasing will convince you to buy instead. But no matter if it's owned or leased, a vehicle needs protection against the elements of nature, theft, collisions, and more. When it comes to finding the right car insurance, whether you choose to buy or lease your vehicle, working with an independent insurance agent is the best way to make sure that you have the coverage you need.

FAQs about Leasing vs. Buying a New Car