Is It Cheaper to Lease or Buy a Car?

Individuals in the market for a new car often have two options: buying or leasing. Some buyers never lease and prefer to buy their vehicle. For these buyers, ownership might be important and they may drive that car until it ultimately needs to be replaced. Those who opt to lease might like the non-permanence of the agreement. Maybe they don’t want to deal with the ownership commitment.

Buyers who are considering their options also might be curious which one is less expensive. Is it cheaper to lease or buy a car? Monthly lease or loan payments can both be higher or lower depending on different factors. Here’s what buyers should consider when they are unsure whether to lease or buy.

All About Leasing a Car

What does it mean to lease a car? A car lease is a short-term agreement or arrangement that allows the ‘lease’ or borrower to rent the vehicle for a specified amount of time. While car shoppers might see themselves as ‘buyers’ when they lease, this isn’t really the case.

Leasing a car is more like renting than buying. When leasing a car, the borrower doesn’t ever have ownership of the vehicle. The ownership of the car lies with the company who offers the lease. This could be the dealership or another entity (maybe a financial institution).

Lease terms can vary, but, typically, a car lease extends for about three years. After this time, the car is returned to the dealership, and the borrower could decide to buy the vehicle. Or the borrower could opt to turn in the vehicle for a new lease on a new model.

During the lease term, the individual who leases the vehicle makes monthly payments as they would on a car loan. These payments cover the price of the depreciation of the vehicle. Lease payments are typically lower than a loan payment would be on the same car. As many different factors can affect a loan monthly payment (including a significant down payment plus a trade-in), some new car buyers could still pay less when opting for a loan versus a lease.

Lease contracts also include certain stipulations. For example, the borrower can only drive a specified number of miles per year when leasing. Going over the agreed mileage will result in extra fees. And Bank rate notes that these fees can be “hefty.”

Lease payments also include interest. As with loans, interest rates can vary because of an individual’s credit score. Interest rates could obviously affect how much the borrower will pay per month. Like buying a car, leases also include finance charges and taxes, too.

With a leased car, the borrower needs to ensure that the inside of the vehicle remains in good condition. Again, the agreement is like renting. If the car is trashed, the borrower will pay for it.

However, when it comes to oil changes, tire rotations, mechanical issues and other basic car maintenance, the borrower is off the hook. Instead, the dealership takes care of these upkeep issues. This can be a nice savings for those who don’t want to incur these expenses or for drivers who just don’t like to deal with the upkeep issues.

All About Buying

Buying a car provides full ownership of the vehicle to the buyer. Individuals can buy a car outright with cash, or they may finance the vehicle through their bank or another financial institution. Financing terms for car loans could vary; loans could be 36 months (three years) or even more than six years.

Longer loan terms could result in lower monthly payments. However, these longer loan terms could be an issue for the buyer as it will take longer for equity to build in the vehicle. Depreciation of vehicles occurs once the vehicle drives off the lot; so a longer loan term may mean that even after a few years of payments, the car might be worth less than the loan amount (aka ‘underwater’).

Those who opt for longer loan terms would likely need to pay for gap insurance coverage that would cover the difference between the value of the car and the loan amount; essentially gap coverage provides insurance for the issue of depreciation and the negative equity of a vehicle. Gap coverage is necessary to ensure that the lender can be made financially whole in the case of a major accident that results in the vehicle being totaled.

Longer loan terms aren’t the only way for buyers to lower their monthly payments, though. A trade-in vehicle could decrease the cost of the new vehicle, and a buyer also could have the financial resources to make a significant down payment that helps lower the monthly costs, too.

In addition, a high credit score could qualify a buyer for a lower interest rate (sometimes even 0 percent!) that decreases the monthly payment. Buyers also could opt to find a vehicle with less upgraded options to lower the price, too.

While monthly loan payments make up the brunt of the cost of ownership, buying also includes taxes and perhaps other charges, too.  Dealerships typically charge a fee for the cost of paperwork called a ‘doc fee.’ Each state may have laws guiding this fee. Florida’s doc fees are more than $600 on average, which is the highest in the country. California’s fees are the lowest, as the state capped these fees at $55.

What is Cheaper Leasing or Buying?

When individuals are trying to determine what option is cheaper when looking at new cars, they need to consider different factors. They also need to examine their own preferences related to the car, its ownership and their driving habits.

A brand new model will typically cost less to lease per month than it will to buy. Again, though, the loan payment related to buying that car could fluctuate related to down payments, interest rates and even a trade-in. However, with all details being equal, leasing will result in a lower monthly payment.

Leasing might be pricier, though, if the borrower drives more miles than is allowable by the lease agreement. In addition, borrowers need to keep the interior clean and well maintained. While the dealership will handle oil changes, tire rotations and other mechanical issues, the borrower is still responsible for keeping the car clean and in good condition.

Finding a Car for Lease or to Buy

Carzing can help car shoppers find the best options for leasing or to buy. Search for new cars by body type, make/model, price or just type in keywords to refine the search.

For individuals who want to understand their costs associated with leasing, Carzing offers a lease calculator. Just type in the details and find out how much that new car will cost per month to lease.

Those interested in buying can get prequalified via Carzing, too. Find loan terms and monthly payments to fit the budget. Carzing will even show buyers the down payment amount they should expect when buying their vehicle.

Whether car shoppers elect to lease or buy a new car, Carzing can make the search easy. Visit Carzing any time of the night or day to search for cars and find more information about financing or leasing a vehicle.

Carzing lets shoppers visit the dealership knowing what vehicle they want, and how they hope to finance those new wheels. This means that the dealership visit can be used to complete the credit application, take a test drive and, hopefully, drive off the lot in the car they really want!