Leasing can be cheaper upfront and ensure you're always driving a newer vehicle, but if you want to avoid mileage and use restrictions, and build equity in your car, buying may be the better choice.
The decision to buy or lease a car comes down to your budget, lifestyle, and long-term financial goals.
Understanding the advantages and disadvantages of both options can help you determine which one is the better choice for you.
Understanding the differences between buying and leasing a car can help you get an idea of what your experience will be like with each option. Here's a quick summary of what to expect, assuming you'll use an auto loan to buy a car:
- Vehicle types: You can buy a new or used car, but if you're planning to lease, new cars are generally the only option.
- Down payment: Leasing usually requires a smaller down payment than buying.
- Monthly payment: Lease payments tend to be lower than auto loan payments because you're only paying for the depreciation plus other charges, rather than the full cost of the vehicle.
- Ongoing costs: Because leased vehicles are typically newer, they tend to have lower maintenance and repair costs than used vehicles and new vehicles you plan to keep for several years.
- Terms: With an auto loan, repayment terms typically range from one to seven years, while leases are typically for two to four years.
- Equity: If you own a car, you can build equity as you pay down the loan. Because you don't own a lease, your monthly payments won't build equity in the vehicle.
- Mileage and use restrictions: Lease companies typically set limits on how many miles you can drive per year and what you can do with the vehicle. When you buy a car, however, those restrictions don't exist.
- Credit requirements: While auto loans are available to consumers across the credit spectrum, your options may be more limited if your credit needs some work. Leases may be even more difficult to qualify for with poor credit.
Is It Cheaper to Buy or Lease a Car?
In the short term, it's generally cheaper to lease a car due to less stringent down payment requirements, lower monthly payments, and minimal maintenance and repair costs.
In the long run, however, you may be able to save more by buying a car because you'll retain all the equity you build as you pay down the loan. If you keep the car after you pay off the debt, you'll no longer have a monthly payment to worry about.
That said, the cheaper option for you ultimately depends on how often you swap cars. To get an estimate of costs for your situation, consider using an online lease vs. buy calculator.
Should You Lease or Buy a Car?
Neither option is inherently better than the other, so it's important to know your situation and goals to determine which route to take. Here are some questions to consider:
How's your credit? Leasing can be more difficult than buying if your credit needs some work. In both cases, however, you'll qualify for the best terms with a credit score of 700 or higher.
- What's your budget? If you can't afford to buy a new car, leasing could be a cheaper alternative. But if your budget is extremely tight, you may be better off buying a less expensive used car.
Check Your Credit Before You Buy or Lease
Regardless of how you decide to acquire your next car, know what your credit looks like before you start the process. You can check your credit score for free with Experian and get a high-level look at which factors are influencing your score.
You can also review your free Experian credit report to get a deeper understanding of your credit profile and look for ways to improve your credit before you lease or buy.
