Leasing vs. Buying: What’s the difference?

Choosing between leasing versus buying a car is one of the most significant decisions you’ll make when shopping for a new vehicle. While both options have their pros and cons, whichever is right for you depends on both your budget and driving preferences.

Do you want to upgrade to a new vehicle every few years? If so, leasing is likely the most affordable way to do it. Would you prefer an automobile that you can share with your family or take on long road trips? If so, buying may be a better option for you.

What, exactly, you pay for also differs depending on whether you lease or buy. For instance, drivers are often required to purchase GAP insurance, but you may not be obligated to pay for this coverage if you’re purchasing a vehicle.

With this guide, we’ll help you understand the pros and cons for leasing vs. buying a car so that you can select the alternative that’s best for you based on your needs and driving habits.

After you’ve considered the differences between leasing and purchasing a car, enter your ZIP code into our free online tool to compare auto insurance rates and find affordable coverage that’s appropriate for you.

What is the difference between leasing and buying a car?

The short version is that leasing a car is like renting a vehicle for a longer period of time, while buying an automobile means you own it and can drive, customize, or resell it as you see fit.

Leases typically last between two and four years. During this time, drivers are required by contract to make monthly payments and often have an annual mileage limit. If a driver exceeds their mileage limit, they pay a sizeable fee. At the termination of a lease, many drivers choose to trade in their leased vehicle for a newer car and begin the process again. Since a driver doesn’t own the automobile they lease, they’re not able to resell it or customize it aside from changes approved by the dealership.

Purchasing a car gives a driver considerably more freedom, but it can also be more expensive and time-consuming in the short term. Whether or not a driver buys a car with a single cash payment or finances a vehicle through a loan, they own it and therefore don’t have to worry about mileage limits or restrictions on customization from a dealership. That said, drivers who own an automobile will also need to keep its actual value in mind, as increasing the mileage and making changes to the vehicle can cause its resale price to plummet.

Why lease a car?

While you won’t own your car at the end of a lease (unless you elect to purchase the car you’re leasing), leasing offers you a new and reliable vehicle at an affordable monthly price point.

Here are some advantages to leasing:

• Leases allow you to drive a newer car for a lower monthly price than if you were to finance the same vehicle
• Leases make it easy to trade in your car for a new one every few years, so that you can always drive a vehicle with modern safety and performance features
• The newer automobiles available to lease often have oil changes and repairs covered by the manufacturer
• Leases can be great if you only need a vehicle for a year or two since you can agree to a lease term of 24 months or less
• Leases involve less concern about the resale value of your car or the reselling process, since you simply return your vehicle upon the lease’s expiration

Why buy a car?

Whether you purchase a car with a single payment or opt to buy it over time via financing, owning a car means you can drive, customize, and resell it at any time.

Here are some advantages to purchasing a car:

• You can drive a vehicle that you own as often and as far as you want without having to worry about mileage limits (which leases have)
• You’ll never be required to trade in an automobile that you own or are financing, which will allow you to retain your favorite car as long as you’d like
• If you can afford to buy a car with a single payment, you’ll be able to customize or modify it right away
• You can resell a vehicle that you own to retrieve some of what you initially paid for it
• If you own an automobile, you can choose to trade it in when purchasing a new vehicle or even give it to a friend or a family member

As you can see, there are reasons not to lease a car, but the choice depends on your personal circumstances.

Leasing a Car vs. Buying: Which is more expensive?

Buying a car is almost always a better financial decision than leasing. This is because once you own a car, you don’t have to make any monthly payments. In other words, the longer you own a vehicle, the more you save in comparison to someone who leases instead. Purchasing an automobile is also often a better choice financially because you can resell a car (or trade it into a dealership) to retrieve a substantial amount of what you initially paid for it.

Even if you decide to finance a vehicle and have to pay off a loan before you fully own it, you’ll ultimately still save more money. One way to look at it is that a typical driver will pay off a financed car within five or six years. This means that if your vehicle lasts you a total of ten years, you will own an automobile for four or five years without having to make monthly payments. That’s longer than many leases even last.

With the above tips in mind, leasing is a good financial option for certain drivers with specific needs. For one, drivers who only need a car for two or three years can save money and time by leasing. Likewise, drivers who enjoy trading in their vehicle for a new model every few years may find that leasing is the most affordable option for doing so. Leasing a business automobile can also save some drivers money due to tax write-offs. But again, outside of some specific situations, buying is the more affordable choice.

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Can you buy a car you’re leasing?

Yes, if your lease has a buyout option, you can elect to purchase your leased car at the end of the lease term. You can also buy out a vehicle during the lease term; however, substantial cancellation fees will apply.

Whether or not purchasing or financing a car that you’re leasing makes financial sense depends on a variety of factors. Before deciding to buy your leased automobile, consider the following:

• Is your leased car’s buyout price comparable to or lower than that of similar used cars? If not, then purchasing the lease probably isn’t a good idea
• Do you intend to buy out the lease with a single payment or convert your lease to a finance agreement? The latter option could have its own restrictions and hidden costs
• What is the condition of the leased car? If your leased vehicle is still in great condition, it may be worth retaining
• Will lease termination fees or other fees apply? It’s worth performing the calculations to determine if it’s less expensive to buy out your lease right away or wait until the lease term expires. Look for a leasing vs. buying a car calculator online to do the math.

Keep in mind that buying an automobile that you were leasing may also require you to purchase new insurance coverage. According to the Insurance Information Institute, most leases require full coverage auto insurance as part of your contract. So, when you switch to a financed vehicle, you may need to purchase both comprehensive insurance and collision insurance to ensure that you’re covered.

What to Remember About Leasing vs. Buying

• Leasing is like renting a car for an extended period. Leasing is ideal if you only need a car for a year or two, want to trade in your old vehicle for a new one every few years, or want to reap the tax benefits of leasing a car as part of your business expenses
• You can purchase an automobile with a single payment or by financing it with a loan. Buying is more expensive than leasing in the short term, but it can save you a considerable amount over time
• Most lease agreements allow you to purchase the car you’re leasing, but doing so before your lease term expires can result in steep termination fees

Whether you’re leasing or buying a car, you’re probably looking for an affordable auto insurance policy that meets your needs. To begin your search, try our free online quote tool to find the best coverage options in your area.

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