Choosing between leasing and buying a car involves a complex decision-making process that goes beyond just financial matters. This comprehensive guide explores the pros and cons of both options, providing insights and questions to consider so you can make an informed choice that meets your unique needs and preferences.
While choosing to lease or buy a car has many financial implications, money isn’t the only factor in this decision. In fact, the choice often comes down to a person’s tolerance for risk and how often they’re willing to switch cars.
If you want to own a car outright and enjoy it for a while without having to pay the dreaded car payment, buying a car is the obvious choice. If you don’t care about owning a car, renting a car is more common than some drivers realize.
According to Experian’s Q4 2022 Auto Finance Market Conditions study, 26.45% of all new vehicles were leased last year, with Honda and Toyota being the most popular automakers.
While renting remains a popular option, the share has dropped significantly — down more than 17% from its peak during the pandemic. Leasing a car can also mean more affordable monthly payments, depending on your situation.
Before deciding to buy or lease a car, consider your financial situation and lifestyle. This guide can help you decide what to consider before buying or leasing a car, as well as the pros and cons of both options.
How Does Buying a Car Work?
If you have the cash, you can purchase the car outright, but most consumers use auto loan financing to facilitate the purchase.
In fact, the same Experian report found that 81.12% of new cars were purchased with an auto loan last year, and 34.59% of used cars were purchased with financing.
Car Financing Today
The prevalence of financing is related to the high cost of cars and trucks, especially new vehicles.
Experian revealed that consumers will spend an average of $41,445 on a new car in 2022, compared with $35,228 in 2021. This brought average new car spending to $716 in the fourth quarter of last year, a record high.
The fact that consumers are borrowing more money has also led to significantly longer terms on new car loans.
In fact, in the fourth quarter of 2022, 42.13% of new car loans had terms of 61 to 72 months, and 30.21% chose loans with terms of 73 to 84 months. A very small minority (1.41%) even opted for a longer car loan term than this.
No matter which payment method you choose, there are many ways to buy a car. You can buy a new car from a car dealer, but you can also choose to buy privately or at auction.
If you don’t have the cash to pay for a car outright, you can see if you qualify for in-dealer financing or seek out a third-party auto loan.
You can use the marketplace to compare car loan rates on new and used cars. For example, some of the marketplaces we recommend include Auto Approve, AUTOPAY, myAutoloan, or RateGenius. These websites can help you find the lowest car loan rates you qualify for.
How to Find the Best Car Purchase Deals
Thanks to technology, finding the best car buying deals is easier than ever. When you’re looking for a new or used car, consider these tips:
Decide on the type of vehicle that fits your lifestyle
Consider the type of vehicle you want most. If you have a family, you might consider purchasing a minivan or SUV for the extra space.
If you want fuel economy, consider a smaller, more fuel-efficient car, or even an electric car. According to Experian, more than 55% of new cars purchased in the last quarter of 2022 were SUVs.
Determine how much you can afford
Make sure the monthly payment for the car you’re considering fits your budget. A car loan calculator can help you determine your monthly payment for a car in your price range.
Find new and used cars in your area with Autotrader
Once you have decided on the type of vehicle you plan to purchase, use the Autotrader search options. The website lets you compare prices, features and upgrades on new and used cars.
Use Kelley Blue Book to measure new or used car pricing
Once you’re serious about a particular car make and model, it helps to know its fair market value. Kelley Blue Book allows you to enter your car model and its features and tells you the average price you should pay through a dealer or through a private sale.
Research car insurance requirements
Find out how much car insurance costs for your vehicle. You can visit any online national insurance company, such as Progressive, to get a quote.
Arrange your own car financing (if required)
Finally, remember that you don’t have to use dealer financing to purchase a car. You can get car loan quotes online and then go to the dealer to negotiate for the best deal.
How Does Leasing a Car Work?
When you lease a car, you are borrowing it for a specific period of time. You won’t build any equity in the vehicle at all, but you usually won’t have to make repairs during the lease because the car is likely to be under warranty.
Despite the drawbacks of leasing, it’s still a popular option for people who want to drive a new car most of the time. With leasing, you buy a new car, drive it for a few years, then upgrade to a new lease and start the process all over again.
You never have to worry about selling your car so you can trade in a new one, or having negative equity on your trade-in.
According to Experian, the average lease length in the fourth quarter of 2022 was just over 36 months (36.46 months). Meanwhile, the average monthly rent is $460.
How to find the best car rental deals
If you decide to lease a vehicle instead of buying one, you’ll want to start your search at major car dealers that offer new cars. Here are some tips to help you find the best rental deal.
Decide on the type of vehicle you want to lease: Compare car options you may be interested in leasing. Do you want to lease a luxury car that you can’t necessarily buy outright? Do you need a reliable car to get to work?
Search for lease deals online: Once you know the type of car you want to lease, check the websites of local dealers in your area. Most highlight rental deals on their website so you can easily search and compare.
Find the lowest monthly payment possible: Since leasing means you never own the vehicle, your main goal should be to find the lowest monthly payment possible. Additionally, whether you want to lease for a year, 24 months, or longer, make sure the lease schedule suits your needs.
Consider the down payment: Check the down payment requirements for a lease, keeping in mind that luxury leases often require thousands of dollars in down payments upfront. This down payment may lower your lease’s monthly payments, but you won’t really “get” anything in return.
Pros and Cons of Buying a Car
If you plan to keep a car for many years, buying a car may be a better option. This is because driving for a few years allows you to build equity in the vehicle, which you can trade for value.
If you keep the car long enough, you can even own it outright and enjoy being car-payment-free for as long as possible. At the same time, owning a car also means you can drive your car however you want and equip it with the latest accessories.
Remember, owning a car means you are responsible for maintenance and repairs, at least after the warranty expires.
Who should buy a car?
Consumers with good credit can get the best car loan rates
People who plan to drive a vehicle for at least three to four years
Drivers who want complete control of their vehicle, including range
People who want to build equity through monthly payments
Pros and Cons of Leasing a Car
If you like to drive your new car often, leasing a car may be a better option. This may be an option for those who want to avoid negative equity in their car or go through the hassle of selling an old car.
Since leasing typically requires lower monthly payments, you may be able to afford leasing a car with more equipment or upgrades than purchasing a new car. Remember, leasing means you never actually own the car, and you always have the car payments.
Leases also come with mileage restrictions, which can be a hassle depending on how much time you drive, and you won’t be able to spruce up your car in any permanent way.
Who should rent a car?
People who like to drive a new car every few years
Drivers who want the best car they can afford with the lowest monthly payment
People who don’t care about car assets
Anyone who wants a car always covered by warranty
Questions to Ask When Deciding Between Buying vs. Leasing a Car
If your main goal is to save money in the long term, buy a car and drive it to the ground! Instead, you can drive a new or used car until repair costs indicate it’s time to upgrade.
If you enjoy driving a new car all the time, leasing is obviously the better option. This is especially true if you don’t worry about making car payments indefinitely.
Before buying or leasing a car, ask yourself these questions:
How long do I want to keep my next car?Do I want a lower monthly payment or the chance to build equity?
What’s my budget?
How much do I drive, and can I live with mileage limits on a lease?
How is my credit score? What’s the best auto loan rate I can get?
How will buying or leasing affect my auto insurance rates?
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