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Should you buy or lease a car?

buying a car
(Image credit: Shutterstock)

If you’re getting a new car, one of the first questions you need to ask is whether you should buy or lease. You end up with a driveable vehicle whichever option you take, but the specifics of buying or leasing a car are very different.

There’s no right or wrong option, since there are plenty of pros and cons to both leasing a car, buying it outright or purchasing with an auto loan or financing plan. The decision is all dependent on your personal and financial circumstances, and what you actually need the car for.

So should you buy or lease your next car? Here are the pros and cons of both.

What is the difference between buying and leasing?

If you don’t have the cash on hand for a new car — and most of us don’t — you can buy the vehicle by  going the financing route. Setting up an auto loan or finance plan means you don’t need to pay for the car in a lump sum, letting you spread the cost out over several months or years.

Meanwhile, leasing is essentially a long term rental. You pay a deposit or down payment, and continue to make payments every month for the duration of your contract. However the car officially belongs to someone else, much like your rented apartment belongs to the landlord.

buying a car

(Image credit: Shutterstock)

Pros of buying your car

Complete control: Once you hand over the money for your car, you are free to do whatever you like with it. Provided you stay within the confines of what’s legally allowed, there’s nothing to stop you from modifying or decorating your car as you see fit. Tint the windows, install an aftermarket stereo system, add an ugly spoiler or something else entirely. It’s your car, so what you say goes.

No interest to pay: When you pay cash for a car, that marks the end of your financial arrangement with the seller. There are no monthly payments to worry about, no interest that accumulates over time, and so on. The amount you paid will forever be fixed, and all you need to worry about is paying for things like insurance or gasoline. 

Financing helps spread the cost: You don’t have to buy your car in cash, and provided you have good enough credit it is possible to sign up for an auto loan or financing plan. It’s similar to leasing, in that you make monthly payments, though you are paying for equity in your own car — once you pay off the loan, the car is yours. However, you do have to be mindful of the interest on your loan, so it’s worth looking around to get the best terms.

jaguar i-pace 2022

(Image credit: Jaguar)

Cons of buying a car

High cost of entry: Buying a car outright means actually having the money to pay for it, which will limit what kind of car you can afford. Meanwhile, financing also comes with deposits and fees, while some arrangements have the “optional final payment” if you want to keep the car. In those cases the monthly payments don’t pay off the full cost of the car, meaning you need to pay it off at the end of your term or return the car.

Depreciation becomes a concern: You ever hear the saying that a car starts losing value as soon as you drive it off the lot? It is sort of true. The longer you have your car, and the more you drive it, the less valuable it becomes. This isn’t really a concern while you’re actively driving a car, but it does mean that when it’s time to buy a new vehicle you won’t get nearly as much money for your old motor.

There’s less flexibility to upgrade: Because of the high cost of entry, and factoring in ongoing depreciation, most people will stick with a single car for several years. Financially, it doesn’t make sense to upgrade cars like you upgrade phones. However, some financing deals do offer a little more flexibility, since you can ditch the optional final payment and return the car. That way you’re free to pick something new, provided you have money for the deposit, though it’s still not quite as flexible as leasing.

2022 Nissan Leaf parked on street

(Image credit: Nissan)

 Pros of leasing a car 

Flexibility: If you buy or finance a car, you are beholden to that model until you decide to sell — usually at a loss. Because leasing is essentially an extended rental, once your term is up you are free to move onto a different car if you’d prefer. 

Short-term agreements are an option: Buying a car or financing a car is a long term investment that will last a few years at the very least. That’s not always the case with leasing; short term plans can offer terms anywhere from three months to two years long. Some companies even offer leases as little as one month long. That way you aren’t beholden for any particular car for too long.

Lower initial cost: Cars are, unfortunately, rather expensive, especially if you’re buying something relatively modern. Leasing is much cheaper by comparison, potentially letting you drive a better car than you’d be able to buy outright. Plus, once your down payment is paid, your payments are fixed for the remainder of your term.

No depreciation: Leasing a car means someone else owns it, but that also means you don’t have to worry about all the baggage that comes with owning a car. Depreciation is the big one, because why worry about the diminishing value of your car when it’s not your car? Whatever happens after your lease is over isn’t your concern.

You may be able to buy the car: After your lease is over, you’ll typically have three options to choose from. Return the car and walk away, trade it for another lease and start over, or in some cases you can buy the car outright. It’s not the most cost effective way of owning a car, and it isn’t always an option, but if you don’t want to switch to another vehicle you don’t necessarily have to.

Some leases include maintenance: If you want to simplify the cost of having a car, some leasing plans do include the cost of maintenance. Rather than have to pay out of pocket to keep your car in top shape, it’s all included in your monthly payments. So all you need to worry about is the cost of gas.

An all electric Tesla Model 3 in white on cement road with trees in background on sunny day.

(Image credit: Shutterstock)

 Cons of leasing a car 

Mileage limits and other restrictions: Leasing comes with restrictions you wouldn’t otherwise have when buying a car outright. The most common restriction is the number of miles you’re allowed to drive, and going over that limit means you have to pay an extra fee.

No equity: While leasing is initially cheaper than buying or financing, both those options give you something to show for it. Finance payments eventually end, and when you’re done that car is 100% yours to do whatever you like. Drive around, sell on, take part in a demolition derby, whatever. Lease payments don’t come with added equity, and once your lease is over you effectively have nothing to show for it.

No permanent modifications: Because a leased car doesn’t really belong to you, it limits what you can or can’t do. That means it has to be returned in the same state as it was when you got it. That means nothing you do to it can be permanent, or you may end up with a large bill to put things right.

The car has to be kept in good condition: By the same logic, the car you lease has to be kept in very good condition. Normal wear and tear is to be expected, so there’s no need for the car to be perfect, but it can’t be returned with obvious damage or missing parts. And, unless your lease includes it, that means paying for your own upkeep and maintenance — as you would with an owned car.

Early termination charges: A car lease is a contract like any other, which means you can’t just drop it on a whim. Owning a car means you can get rid of it whenever, and however you like, whereas leasing makes you beholden to the terms of the deal. Unless you want to incur early termination charges, and those can be very expensive. Selling your lease through a third party is an option, but even that is going to cost you money.

Bottom line

There’s no right or wrong choice when it comes to car ownership. There are plenty of benefits to buying a car outright, but cost does mean there’s quite a high barrier of entry — especially if you want to buy a brand new vehicle. Then again, despite its initial convenience, leasing has some drawbacks.

Whichever option you choose is entirely up to you. Maybe you don’t want the hassle of actually owning a car, or would rather be free to upgrade to a better model after two or three years. Or perhaps you want to get the financial aspect over and done with, or keep driving until you run the car into the ground. You just need to make sure you know what you’re getting in for.

Tom is the Tom's Guide's Automotive Editor, which means he can usually be found knee deep in stats the latest and best electric cars, or checking out some sort of driving gadget. It's long way from his days as editor of Gizmodo UK, when pretty much everything was on the table. He’s usually found trying to squeeze another giant Lego set onto the shelf, draining very large cups of coffee, or complaining that Ikea won’t let him buy the stuff he really needs online.