By JPMorgan Chase
May 6, 2024, 08:00 AM EDT
Do I buy or lease a vehicle? As with many major purchases, there is no definitive answer, but both options have their pros and cons depending on your transportation needs and financial situation. Here we help you break it all down.
Differences between leasing and financing
Both leasing and financing allow you to obtain a vehicle, but the payments produce different results. Think about leasing as renting an apartment, while financing is like buying a house.
When you lease a car, you borrow it for a certain period of time and make monthly payments for its use. At the end of the term, you return the car or choose to buy it, if the lease allows the purchase.
When you finance a car, you take out a loan or installment financing, and you make monthly payments to a lender until the loan is paid off. Once all payments have been made, you keep the vehicle for as long as you want.
Leasing a car: Five pros and cons
- Pro: Leases typically include lower monthly payments and down payments (if needed). Additionally, many new leased vehicles often include maintenance and repair coverage provided by the manufacturer or dealer. As long as you avoid incurring penalty charges (more on that below), you might be able to save some money.
- Pro: Leases could be beneficial if you stay local. Your contract will stipulate a certain number of miles that you will be allowed to drive during the lease term. If you know you’ll stay under that number and minimize wear and tear on the car, you’ll avoid penalties for overuse.
- Pro: Leases are ideal for car enthusiasts who enjoy new makes and models. The average lease is 36 months (3 years), and when it expires, you simply return the vehicle and look for a new one.
- Con: You may have to pay additional fees. If you exceed the mileage limit, you will have a penalty at the end of the lease. There are also early cancellation fees, as well as charges for any damage caused.
- Con: You will always have a monthly payment, but unlike financing, you will not keep the vehicle at the end of the term. You will make payments until the end of the lease term, and if you decide to choose another vehicle, you will begin a new monthly payment cycle.
Buying a car: Five pros and cons
- Pro: You can keep the car as soon as you pay it off. You don’t have to worry about getting another vehicle and negotiating another lease.
- Pro: You will enjoy unlimited miles. If you plan to take a lot of road trips or relocate in the future, your mileage will increase faster than expected. By purchasing the car, you’ll avoid potential mileage or damage charges at the end of the lease.
- Pro: No more car payments. By paying off the financing, you no longer have to worry about monthly car payments, which gives you more room in the budget for other financial goals. Additionally, by purchasing a car you will have more control over your new asset, which you can even sell for cash if your plans change in the future.
- Con: Financing can be more expensive. Car prices today are relatively high, and you may have to make a down payment before you even start making monthly payments.
- Con: You’ll have to pay for maintenance, inspections, and other costs that would have been covered in a lease.
How to decide between buying or leasing a car
Some people may choose to lease because they don’t drive much or because they like the option of having a new car in a few years. Others’ tastes may be the permanence of financing a car purchase, especially if they find an older used car on sale that they can pay off quickly.
Whether leasing or purchasing a car, it’s always a good idea to do your research, set a budget, and improve your credit score (if necessary) to ensure you can get a car you can afford. Evaluate your short- and long-term financial goals and make sure you understand the terms of the lease or loan so there are no unexpected expenses. Then, the decision is yours. Enjoy your car!
For more information, tips and tools, visit chase.com/auto.