Car Shopping? Solving the Lease vs. Buy Conundrum

By Jackie Prideaux, CFP® | Sep 25, 2019 |

Leasing vs. buying a car—what makes more sense for you?

leasing vs. buying a car dealership lot

Are you shopping for a new ride? Maybe you want to drive the latest make or model but prefer a relatively low monthly payment with no long-term commitment. Or perhaps you dream of finally eliminating those car payments from your monthly budget and owning outright.

The choice between buying and leasing can be a tough call for some consumers. For decades, leasing was typically limited to high-end luxury vehicles. The landscape has shifted in recent years, as people lease more mainstream sedans and SUVs. With an array of options and interest rates for both car loans and leases at historical lows, it can be hard to determine what makes sense for your wallet and lifestyle.

While there is no perfect answer, sorting out factors related to cost and personal preferences can help you make a decision that works best for you.


One could argue that the main advantage of leasing a car is to maintain the lowest possible monthly payments. If that is your sole goal, then leasing may be your best bet. For leases limited to two or three years, payments are generally low with the added benefit of a higher trade-in value once your lease expires.

Beyond the monthly payments, it’s important to consider other costs that go into the purchase or leasing of a vehicle. The cost of a down payment and ongoing maintenance can vary significantly between buying and leasing. While some leases do require a down payment, typically a larger one (10-20 percent) is required for buying a car outright.

Do you sit in traffic during your commute and have teenage drivers that are prone to bumps and dings? Putting wear and tear on a new, leased car could be more palatable since new cars are usually under warranty. The cost of repairs can rise significantly as cars age, so budget for ongoing maintenance if you decide to buy. That said, take-home savings from paying off your car loan should leave plenty of cash leftover for upkeep.

Lastly, depreciation is real. On average, a new car loses 10 percent of its value once it’s driven off the lot, and logging miles on a car is the quickest way to reduce that value further. If you wonder if leasing can avoid this pesky problem of mileage, keep in mind that leases often have mileage limits that penalize a drive if exceeded. With penalties ranging from 5 to 20 cents per mile, those costs could add up very quickly.


Knowing how often you will want to drive a new car is a crucial factor in deciding between buying vs. leasing. If fabulous, envy-inducing wheels are what you’re after most of all—or if it’s important for your career to drive a newer car—then leasing can be an easy decision.

For a business owner who can deduct certain vehicle costs on their taxes, for example, driving a luxury new car can be impressive and have a financial benefit at the same time. Beware of feeling like leases are completely flexible though; breaking a lease can come with steep penalties. If you own a car outright, you have the freedom to sell or trade-in whenever you choose or whenever is right for you financially.

Leasing vs. Buying a Car: The Verdict

The math may show that over the life of a lease (e.g., three years) your total costs are less than if you had a bought a car outright. However, don’t forget: after you pay off a car loan, you own the vehicle as an asset. Your cost of ownership is further reduced if you own a car that has a high resale value.

If you generally enjoy driving a car for an extended period, and a dealership or bank is offering low or even zero percent financing, buying is the way to go. From a purely financial perspective, the most cost-effective way to buy a car is to purchase something pre-owned with competitive financing. Cash you would otherwise use to purchase outright can be working harder for you elsewhere, and you don’t risk off-the-lot depreciation.

The truth is that, for most people, leasing makes less financial sense than buying. But for some, leasing may make a great deal of sense when it comes to personal preference and flexibility.

No matter which option you choose, make sure to shop around. Exact prices of vehicles can vary greatly even within the same region of the country. The terms of a lease or terms of financing can vary greatly, too. Do your homework and empower yourself to walk into a dealership with supporting information.

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