Lease or buy? What to consider when shopping for your next car

Smiling woman taking selfie with new car in showroomImage: Smiling woman taking selfie with new car in showroom

In a Nutshell

If you’re not sure whether to lease or buy a car, start by calculating your hypothetical monthly costs for leasing vs. owning. You may also want to consider how much flexibility will matter to you down the road. Depending on your costs and needs, you’ll be able to decide to lease or buy before you head to the dealership.
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At a glance: Lease or buy?

Potential benefits of leasing a car Potential benefits of buying a car
  • Lower down payment
  • Lower monthly payments available
  • Repairs typically covered by warranty
  • No selling involved
  • Possible option of new car every few years
  • Eventual ownership
  • Modify car without fear of breaking contract
  • No mileage limits
  • Sell car any time after it’s paid off

Shopping for a new car? Maybe your current ride has some wear and tear, or you’re interested in switching to a car with better gas mileage. If you’re wondering whether your best move is to lease or buy a car, it’s worth considering both options.

If you’re looking for the most cost-effective option over the long term, buying a used car and keeping it for a few years after you’ve paid it off is often the best choice. But what if you like having the newest technology or the most-up-to-date safety features? Leasing might give you the freedom to make the periodic upgrades you’re looking for without breaking the bank.

Lease or buy: 3 factors to consider

Monthly payment

If your main goal is to get the lowest monthly payments, leasing could be your best option. Monthly lease payments are typically lower than auto loan payments, because they’re based on a car’s depreciation during the period you’re driving it, instead of its purchase price.

Overall costs

Car down payment

Thinking about financing your next car? Your required down payment could be around 10% to 20% of the car’s total cost.

Leasing may also require significant upfront costs, including the first month’s payment and a down payment — especially if you’re interested in negotiating the lowest possible monthly payment.

Auto repairs

The cost of repairs can hit both car buyers and lessees. Cars are typically leased for three years, so if you lease a brand-new vehicle it will likely be under warranty for the duration of your lease. But you may still have to pay for maintenance and repairs, and you might even be required to replace worn tires, scratched windows or other blemishes when you return the car.

As cars get older, the cost of repairs can rise significantly. If you decide to buy, you’ll want to budget for regular maintenance and upkeep.


If you’re a car owner, the more miles you drive, the faster your vehicle depreciates. But putting lots of miles on your car can be an even bigger problem if you want to lease. Auto leases usually come with mileage limits, typically set around 12,000 miles per year for a standard lease. Going over that number could mean being penalized at a rate of about 15 cents a mile.

Leasing fees

Here are some of the other unique fees you may have to pay if you choose to lease a car.

  • Acquisition fee — This covers the leasing company’s administrative costs for arranging the lease.
  • Security deposit — This might be roughly equal to one month’s lease payment.
  • Early termination fee — You might be charged this fee if you end the lease contract early.
  • Disposition fee — This covers the leasing company’s costs for cleaning and selling the car at the end of the lease.


For many drivers, the idea of being locked into one specific car over a long time period is … less than ideal. If that sounds like you, leasing might be your best bet.

But leases may not be as flexible as you think. If you get tired of your car or your needs change, you may want to think twice about turning the car in before the end of your lease. If you break your lease early, you could be on the hook to pay some steep penalties. You could even be required to cover all of the remaining lease payments and pay additional penalties on top of any other fees. Ouch.

What’s next?

As with any major financial decision, it’s important to do your homework before deciding to lease or buy a car. Ultimately, the best choice for you depends on your preferences, your budget and your ability to handle the expenses you might incur down the road.

About the author: Sarah C. Brady is a San Francisco–based financial consultant, workshop facilitator and writer. In addition to writing for Credit Karma, Sarah writes for Experian, LendingTree, Magnify Money, MSN News and more. In her … Read more.