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Leasing vs. buying a car outright: What’s the better money move?

How to decide between temporary and long-term financing.

You’re ready for a new ride, but determining if you should lease or buy a car can be a tricky decision. Each offers its own benefits — added flexibility versus no mileage restrictions — and really comes down to what you need in a vehicle.

Is it better to buy or lease a car?

It depends on your individual situation. Generally, leasing might be best if you plan on getting a new car in a few years. Buying might be a better choice if you want to make alterations to the vehicle or you want to own your car. To decide which is better for you right now, you need to understand how leasing and buying works.

Leasing a car

When you lease a vehicle, you’re essentially borrowing it for a few years. Your contract allows you to drive a predetermined number of miles each year — typically between 10,000 and 12,000 — and charges a fee if you go over. You also can’t make any alterations to the car, and the car has to remain in good condition. At the end of the lease, you may have the option of buying the car or starting a new lease. And if you decide you want to buy a different car instead, you can do that, too.

  • Mileage limited by a strict contract
  • Excessive wear and tear leads to high fees
  • Altering the car is generally against the lease contract
  • Often can’t be used for trade-in value

Take a deeper dive into the benefits and drawbacks of leasing

Buying a car

When purchasing a vehicle, you can pay for it up front or use a car loan. Most car loans use your car as collateral until you pay off the entire balance — plus interest and fees. However, you’ll still own your car outright — your lender will simply have a lien against it should you default. And when you buy a car, you don’t have to worry about mileage restrictions, alterations or keeping your car in good condition.

  • Can be used for trade-in value when you sell
  • Generally the most cost-effective option
  • Drive as many miles as you want
  • Customize the car as you wish
  • Costs more money up front
  • Longer terms may mean more interest
  • Responsible for repairs when the warranty expires

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What are the differences between buying and leasing a car?

OwnershipWhen you buy a car, you own it — your lender only has a lien against the vehicle should you fail to repay. Because of this, there are no limits on how long you can keep your car or how much you can drive it.A lease is more like an extended rental period. However, most lease contracts give you the option of buying at the end of the term, sometimes at a discounted rate.
Upfront costsTypically make a down payment of 10% to 20% of the car’s value as well as registration costs, fees and taxes.May include a down payment, security deposit, acquisition fee, the first month’s payment and other taxes and fees.
RepaymentsCar loan payments can be quite hefty, especially if you choose a shorter loan term. You’ll be paying back the principal plus interest and fees, so use a calculator to see how much it might cost you.Lease payments can be smaller. However, lenders charge interest as well as fees for vehicle depreciation and mileage — should you go over your limit.
MaintenanceThrough regular maintenance and avoiding excessive wear and tear, you can keep your car functioning for years to come.Beyond regular maintenance, you need to pay for any excessive wear and tear that happens to the car during the lease period.
Mileage limitsNo mileage limitations.Most lease contracts limit you to a certain amount, usually between 10,000 and 15,000 miles.
Ending the contract earlyYou can pay off your loan at any time, though some lenders might charge prepayment penalties.You can end the contract early, typically for a fee.
After the term is upYou’ll own your car — free and clear. You can sell it or keep it, whichever you choose.You have seven options to choose from at the end of your lease, including buying the car, extending your lease or returning the vehicle.

Can’t decide? Ask yourself these 9 questions

How else can I pay for a car?

  • Secured personal loan. A secured personal loan lets you use the car as collateral, giving you lower monthly payments. This is different from a car loan because your loan funds can be used for more than just the purchase of a vehicle.
  • Unsecured personal loan. An unsecured personal loan can be used to finance a vehicle — or anything else you want to buy. These loans are flexible, but they usually come with higher fees and rates because they pose more risk for the lender.

5 tips for buying or leasing a new car

Whichever option you’re set on, there are a few general tips to keep you from spending too much money.

Bottom line

Opting for a lease can offer the flexibility and luxury many drivers crave at a fraction of the cost of buying. But with limited return on value — and no ownership of the car at the end of the contract — it’s often considered a more expensive move. Buying a car won’t allow you to upgrade every few years, but it will give you access to a stable vehicle that you can drive where and how you want.

The best decision will depend on your financial needs. You can learn more about how car leases work or compare your car loan options against manufacturer lease deals to see which gets you the best bang for your buck.

Frequently asked questions

  • Yes. In fact, leasing a used car can be a cost-efficient move if you plan on only driving for a few years and want a low monthly payment.

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