Lease or Buy

Leasing a new car can be a confusing option for those who are looking to get into their first new car. However, it doesn’t have to be. How do we know whether to lease or buy? In a lot of cases, leasing is the best option for people. Throughout this comparison, we’ll help you answer the lease or buy question. For many people’s lifestyles, leasing could be the more financially sound option. For others, buying is the better option.

Leasing a new car finances the depreciation of the vehicle over a set time period. Purchasing a car finances the entire value of the car.

On the most basic level, leasing a new car can be viewed as financing the depreciation of a vehicle over a certain time period. Purchasing a car finances the entire cost of the vehicle. When you lease a vehicle, the end of your leasing period requires that you either return the vehicle or pay a predetermined purchase price to keep the vehicle. When you purchase a vehicle, the end of your payments mean that you wholly own the vehicle. With these fundamental differences, how does one know which option is best for them? Well, it depends on you to lease or buy.


  • Short-Term Use
  • Lower Payments
  • Excess Cash
  • Stay in Warranty
  • Latest Features
  • Pay Less Taxes


  • Ownership
  • Unrestricted Mileage
  • Unrestricted Modifications
  • Long-Term Savings
  • Freedom to Sell
  • No End of Term Fees

What is a Lease?

When you’re deciding whether to lease or buy, you should probably understand what a lease is. A lease is an agreement to allow a lessee to use an asset that someone else owns. In the automotive world, leases are usually short term, mileage restricted agreements to use a vehicle. Payment for the lease is based on the anticipated depreciation of the vehicle over the terms you agree on. If you’re leasing a $30,000 car for 36 months with an annual mileage restriction of 12,000 miles and the expected value of the car at the end of the term is $20,000, then your basic leasing price is the difference of $10,000. We break this down a little better in a later lease or buy example.

Leasing a vehicle limits lessees (you) to operate their vehicle within certain mileage restrictions. Lease limitations for mileage typically range from 10,000 miles annually to 16,000 miles. For those who intend to drive fewer or more miles on an annual basis, lessees can work out different rates for different mileages when the lease agreement is initially formed. Because you’re paying for the depreciation of the vehicle, higher mileage lease agreements tend to cost more, vice versa.

Leasing also places restrictions on modifications to a vehicle. Since the price of your lease is determined by the anticipated value at the end of your term, modifications to your vehicle can affect that value and are usually not allowed. If you’re trying to determine whether to lease or buy and you intend to modify your vehicle, leasing is not the option for you. If you don’t mind keeping your vehicle as is, leasing is a viable option.

Leasing has many benefits versus buying. People who enjoy being in the latest cars with the latest features will benefit from leasing. For those who like to cycle through cars every couple of years, leasing is often a better option. People who are continually leasing vehicles also have the benefits of keeping their vehicles within warranty periods and having lower payments. You also won’t have to deal with selling your car or trading it in when your term expires. For a simplified financial breakdown on the lease or buy question, read on.

Lease or Buy Simplified Example

For many people, the lease or buy question is simple. It all comes down to your lifestyle and your needs. Since leases finance the depreciation of the vehicle and purchasers finance the total vehicle price, people who enter lease agreements almost always have lower payments. Lets break down the lease or buy question into a simple example. Keep in mind, these are highly simplified examples that don’t include fees or tax or interest.

  • Buy Example // If you’re looking to buy a $30,000 car, you’re going to have to finance $30,000.
  • Lease Example // If you’re looking to lease a $30,000 car, you’re going to finance the expected depreciation over the terms of your lease agreement. At the time that we form our lease agreement, we anticipate that the car is going to be worth $20,000 in 36 months. We’re also placing a limitation on mileage to under 12,000 miles per year. This means that you only finance the difference in values. In this scenario, you’re only going to finance $10,000 ($30,000 – $20,000).

Since you’re financing significantly less with a lease compared to a purchase, your payments are going to be much lower. In the above example, in a simplified world without taxes or fees, the purchaser is going to pay $500 per month for 60 months. A lessee in the above example would only pay $277.78 per month for 36 months. Total out of pocket over 36 months for the lessee is $10,000, whereas the purchaser pays $18,000.

This explains why payments for leases are significantly lower than the purchase of a new vehicle. So what are the implications of this example? This shows that those who are interested in being in the latest cars are probably going to be better off leasing a vehicle. In this example, the car is worth $20,000 at the end of the 36 month period. The lessee can simply turn the car into the dealer and pick up a new car with a new lease agreement. For buyers, if you’re interested in getting a new car after 2 or 3 years, you’re going to have to go through the car selling or trading process, and you could potentially lose money if the car’s value is lower than you anticipate. Keep in mind, this is an unrealistic example without fees, money factors, interest rates or taxes.

Lets Complicate the Lease or Buy Example

In the above example, you’re going to break even with purchasing if you’re able to sell your car for $20,000. However, in the real world there are additional costs to consider. When you purchase a vehicle outright, you pay taxes on the full cost of the vehicle. When you lease a vehicle, you pay taxes on the amount financed. If you add on a 7.125% sales tax in this example, the buyer is going to pay an additional $1,282.50 over 36 months or $2,137.50 over the full 60 months. On the other hand, the lessee would only pay $712.50 in taxes over 36 months.

The same situation occurs with interest. Buyers pay interest on the entire $30,000. Whether you lease or buy your next vehicle, you’re probably going to end up paying some form of interest. When you finance the purchase of a vehicle, your interest is termed as the interest rate. Lessees pay a differently termed money factor or lease rate on the amount being financed. There are also fees associated when you lease or buy a new vehicle. For specifics on the fees you’ll encounter, speak with a member of our staff for a better understanding. In many cases with leasing, fees, taxes and interest are rolled into the monthly payments.

So What Should I Do, Lease or Buy?

With this information, how do you know which option is best for you? Do I lease or buy? For people who are interested in changing cars every couple of years and don’t mind operating within mileage restrictions, leasing is probably for you. You’ll get the benefit of keeping a car under warranty, enjoying the latest car features and having significantly lower payments. If this fits your lifestyle, your answer to the lease or buy question is probably lease. However, you’ll lack ownership of the actual vehicle. You won’t be able to modify the vehicle. You’ll have to maintain the vehicle well or face end of term fees and you’ll have to operate within predetermined mileage restrictions. At the end of your lease, you’ll be able to purchase the car outright, but its generally more cost efficient to have purchased the vehicle initially rather than lease-to-own. When you lease a vehicle, you lack long-term cost efficiency because you’ll always be making payments.

When you purchase a vehicle, long-term buyers will have the benefit of actual ownership. You’ll have free reign over modifications, condition and mileage. Eventually, your warranty will expire and you may have to pay some high-dollar repairs, but the biggest benefit to purchasing a vehicle is that long-term ownership spreads out the costs. Eventually, your payments will fizzle out and you won’t have to worry about a car payment. You’ll also have the freedom to sell the vehicle whenever you please.

Financially, whether or not to lease or purchase typically comes down to how long you intend to own or use (lease) the vehicle. The lease or buy question can often be answered by acknowledging how frequently you intend to replace your vehicles.

  • Short-Term // For those who like to replace their vehicles frequently, leasing is probably the better financial option for you. Your vehicles will always be under warranty, have the latest features and your payments will be lower. Lease or buy? Lease is usually better for short-term users.
  • Mid-Term // For those who want to keep their vehicle for more than a few years, leasing or buying are both good options. One of our lease deals that we offer is going to be a great option for mid-term users. Lease or buy? Choosing to lease or buy can both be viable options.
  • Long-Term // For those who don’t mind keeping a vehicle for a long time, buying the car to spread out the cost is usually the better option. Lease or buy? Buying is typically better for long-term users.

Benefits and Drawbacks to Leasing

Now that you understand that the financial benefits or drawbacks to lessees depends on your lifestyle and your anticipated length of use of the vehicle, lets take a look at the other benefits and drawbacks.

Leasing has quite a few benefits to it. You’ll always be in the latest vehicle. You’ll have the latest safety features, tech features and more. Since you’ll be changing vehicles every few years, you’ll be able to stay up-to-date. Your short-term usage also allows you to keep your leased vehicle within the manufacturer’s warranty. Your payments will also be lower than if you purchased the vehicle outright. Lower payments mean you can enjoy more excess cash for spending or investing. At the end of your lease, you’ll also have the ability to purchase the vehicle for a predetermined price.

The drawbacks to leasing a vehicle are that you have to operate within certain mileage restrictions and you won’t actually own the vehicle. You won’t be able to modify your vehicle and you’ll have to consistently and properly maintain your vehicle. Over the long-run, serial lessees will end up paying more to be in the latest vehicles.

Benefits and Drawbacks to Buying

The benefits to buying a new car come from the actual ownership of the car. When you purchase a new car, you have the freedom to drive however many miles you please, modify the car as much as you please and sell the car whenever you please. Another major benefit to buying is that you can spread out the total costs over a long period of time. For a lot of people, the long-term cost benefits answer the lease or buy question for them. If you want to own your car for a long time, buying will save you money over the long-term.

The drawbacks to purchasing a vehicle are that your payments are going to be substantially higher than leasing, you’ll have to deal with the eventual selling or trading of your vehicle and cost-efficiency comes from long-term ownership. If you want to consistently be in the latest and greatest, leasing is probably more for you.