Before you decide whether to buy or lease a car, let’s discuss the difference between the two:
What is a car lease?
Car leasing is when you pay to drive a vehicle for a set period of time, usually between three and five years. Instead of paying full price, you pay the difference between the car’s new value and its anticipated residual value (what the dealer expects the vehicle to be worth at the end of the lease).
Leases generally have lower down payments and lower monthly payments. However, at the end of the lease, you must return the car to the dealer; you cannot sell or trade it (although can buy it from the dealer at the end of the lease if the contract allows it). You are also limited to a certain number of miles during the lease.
What is buying a car?
Buying a car is easier. You can pay cash upfront for the full price of the car, or you can finance the car through a lender. The car dealer can find a lender for you, but you can also shop for loans from banks and credit unions on your own.
If you apply for a loan, you’ll need to make a down payment and monthly payments, including interest, until the car is paid off. You can keep driving the car for as long as you want and you are free to sell or trade it whenever you want.
Here’s a quick breakdown of leasing versus buying a car:
| Lease | Buy | |
| who owns the car | The leasing company or dealer, unless you exercise your purchase option at the end of the lease term. | If you pay cash, the vehicle is yours from the start. Otherwise, the lender is the owner until he has repaid the loan. |
| Deposit | The required down payment when leasing is usually less than when financing (and sometimes no down payment is required at all). | The down payment required when buying is usually higher than when leasing. |
| Monthly payment | Usually less than the monthly loan payments. | Usually more than monthly lease payments. |
| Startup costs | It may include a down payment, security deposit, registration fees, taxes, and other costs. | It may include a down payment, registration fees, and taxes. |
| restrictions | Mileage limits and restrictions on most modifications. | Freedom to drive and customize everything you want. |
| end of terms | You must turn in the vehicle at the end of the lease; no exchange value. (Note: you can sometimes buy the car at the end of the lease.) | Keep the vehicle after paying for it; free to sell or change whenever you want. |
| Credit | Builds credit if the leasing company reports lease payments to the credit bureaus; generally requires a higher credit score to get approved for a lease. | Builds credit if the finance company reports loan payments to the credit bureaus; You can usually get a loan with a lower credit score than the one required for the lease. |
