To lease or to buy is a common question for those looking to purchase a new car. Unfortunately, there’s no one-size-fits all answer. The best way to figure out which is right for you is to weigh out the differences between the two.
How Car Leases Work
When you buy a car—with or without a loan—it is pretty definitive that you are the owner. Leasing, on the other hand, is more long-term renting.
When you lease a car, you typically make a monthly payment for a fixed period of time. There may be some additional costs based on how many miles you drive, but at the end of the lease, you have the option to either buy the car at a discount or give it back to the leasing company.
While that arrangement seems simple enough, the finances behind leasing are anything but. When deciding between buying or leasing your next car, keep in mind the following pros and cons.
Pros of Leasing
- Potential lower monthly payments – One of the main benefits of leasing is oftentimes, you’ll find a lower monthly payment compared to a monthly payment toward a car loan.
- No worry about depreciation – As soon as you drive off the lot in a new car, it takes a dive in value. With a lease, you don’t have to worry about the loss of value due to regular wear and tear.
- Get a new car more frequently – If you want to switch up your car every two or three years, a lease makes that easy. Instead of owning a car that depreciates and selling it a few years after buying, a lease makes it easy to trade in for something new.
- Maintenance may be included – Because the leasing company technically owns the car, it will sometimes cover all or some of the car’s maintenance.
Overall, leasing can give you the freedom to make occasional upgrades without breaking the bank.
Cons of Leasing
While there are benefits to leasing a car, there are also a few drawbacks. Here are some important things to consider:
- Paying interest – A car loan typically charges an interest rate based on your credit and current market conditions. While you might not see this directly with a lease, you’ll instead see a “money factor,” which is the interest rate you pay over the period you lease the car.
- You don’t own the car – While paying on a loan, you still possess some level of ownership of your car alongside the financial institution, and at the end of the loan, you officially own it. At the end of a lease, however, you will have spent a good amount of money and don’t have anything to show for it other than the option to buy the car at a discount.
- Mileage and wear charges – When you own a car, you can drive it as much and as far as you want with no major repercussions. When your lease ends, however, you may have to pay for excess mileage or wear beyond what the lease allows.
In the long run, owning a car can often make the most sense financially. If you were to buy a car and keep it for an average of 10 years instead of leasing new cars over a 40-year period, you could save a significant amount of money.
What Leasing Means for Car Insurance
Now that you have a better grasp on the difference between buying vs. leasing, let’s look at another important factor in your vehicle ownership cost: auto insurance.
Does buying or leasing give you a better car insurance deal? Surprisingly—there is no difference.
While your leasing company may require a certain auto insurance minimum while you have the car, there is typically no material rate difference between buying and leasing when it comes to your car insurance.
One of the easiest ways to save money on car insurance, though, is to bundle insurance. Bundling—technically known as a multi-policy or companion discount—can often save you money by going through the same carrier for two policies, oftentimes home and auto insurance. Taking the time to compare opportunities for discounts can be time consuming, but we can shop some of the industry’s most trusted carriers for auto and home insurance in just minutes, helping you save both time and money.
So, should you lease your next car?
Your decision on whether to buy or lease your next car comes down to priorities.
If your primary concern is cost, buying is often a better option than leasing. Paying off a loan leaves you with a car you can sell or continue to drive with no monthly payments. This option tends to be preferred opposed to giving the car back at the end of a lease and potentially having to pay fees. Although, if you plan or prefer to get a new car every few years, leasing might then be the better option for you.
Luckily, your car insurance costs are the same either way. Navigating all the options and fine print can be overwhelming, though, often bringing up more questions than answers. We’ve made the process easy and can shop some of the most trusted auto insurance carriers on your behalf and compare prices and coverage in just minutes.
