When Is It Better to Lease Than Buy a Car?

One thing is clear, there are times when you need a new vehicle, or at least one that’s new to you. There are a few different ways to go about paying for an automobile — leasing and buying — each with pros and cons worth exploring. We often think about buying a car, so you may be wondering when is it better to lease than buy?

Keep reading to learn more.

Leasing vs. Buying: The Differences

First let’s cover the main distinctions between leasing and buying.

Buying a car entails either paying in cash or borrowing the money in the form of a loan to own the car. Leasing is more like renting a vehicle for a few years, after which you can choose to either purchase the vehicle or return it.

The main advantage of buying is that you’ll own the vehicle outright once you’ve satisfied the terms of your loan. This allows you to customize your car, drive as many miles as you want and keep it for as long as it runs.

An advantage of leasing is that you only have to pay for your usage of the vehicle during your “rental” term. This often means monthly payments will be lower, maintenance will be covered, and you’ll have the choice to get a new car every few years rather than committing to one vehicle for a longer time period.

Another key difference is the down payment. It’s often required, or at least recommended, you put down a 10-20 percent payment up front when buying. Car leases generally don’t require comparable down payments. And, in fact, it often doesn’t save you money to put one down — even if it is an option.

Situations Where Leasing a Car May Be Better

As we mentioned, lease deals may be a better fit if you’re hesitant to commit to a car for five or more years — or if you don’t have a substantial down payment ready to go.

What are some other situations in which leasing a car may be the way to go?

• You use your car for business: As Investopedia notes, car leases often allow drivers to maximize their tax deductions compared to loans. Why? The IRS allows deductions for both depreciated value and the financing costs of each monthly payment.

• You don’t drive very far annually: If you have a short commute or otherwise don’t use your car very much, leasing may be an attractive option as you’ll have no problem staying under the mileage cap. Be aware leases usually cap mileage at a certain amount annually — for example, 12,000 miles — and you’ll have to pay overage fees if you exceed them. There may be some wiggle room to negotiate this cap, which is better to do on the front end than on the back end when each additional mile will cost you.

• You want a newer vehicle/features: Leasing allows drivers to get “more car for less money” in the sense they may be able to afford monthly lease payments on a newer, higher-end vehicle than they would get with comparable monthly payments on a purchased car. If you like the bells and whistles, or the idea of driving a new model car, then leasing may be up your alley.

Whether buying or leasing your next vehicle makes more sense for you depends on key factors like: how long you want to use the car, how many miles you drive per year, whether or not you use the vehicle for business and how much you care about having a new car with updated features. Just like there are pros and cons to renting an apartment versus buying a home, there are important advantages and disadvantages to weigh when it comes to purchasing versus leasing a vehicle.