Lease vs Finance: Which Option Is Best for Your Next Car?

Luxury car in front of the business buildings. With Auto Bandit, you have the option to lease or purchase it.

Debating between leasing or financing your next car? Each option comes with distinct advantages but those advantages depend on your specific needs.

Leasing vs. buying a car will depend on your budget, lifestyle, and your driving habits. For example, you'll have lower monthly payments with a lease but you won't build equity. This guide will detail both leasing and buying to help you make a confident decision.

Understanding Car Leasing

Essentially, think of leasing as entering into a long-term rental agreement. Many people are attracted to leasing because of the flexibility and lower short-term costs.

Here are the vehicle leasing basics that you, the lessee, need to know:

  • Leasing essentially works as a long-term rental agreement. You'll make monthly payments for a set amount of time, usually 24, 36, or 48 months.

  • Lease payments are lower than loan payments if you purchased the same car.

  • You avoid paying for costly repairs because new leased car repairs are covered under the manufacturer's three-year warranty.

  • At the end of the lease the car must be returned in showroom condition, minus normal wear and tear.

  • Leases have mileage restrictions of from 10,000 to 15,000 miles per year.

  • At lease-end you don't have any equity. You may buy the car at a predetermined price, lease another car, or return the car.

The Benefits of Leasing a Car

  • Drive a New Vehicle – With leasing, you drive a new, better equipped vehicle with the latest technology. Newer models make your driving experience safer and more enjoyable.

  • Lower Payments – In general, leasing has lower upfront costs and lower monthly payments than financing.

  • Leasing Incentives – Loyalty programs and manufacturer deals can lower costs even more but aren't always advertised. You may need to look into incentives on your own.

  • Lower Maintenance Costs – Leased vehicles are within the 24- to 36-month new car warranty period. The warranty will cover repairs during most or all of your lease.

  • Lower Fuel Costs – Newer model vehicles have better fuel efficiency, reducing your fuel costs.

  • EV Tax Credits – Leasing an electric vehicle (EV) usually comes with financial benefits such as tax credits and incentives. You have to qualify for those benefits when you buy an EV.

  • No Selling Hassles – No need to haggle when it's time to sell your car. Just hand over the keys at the end of the lease.

  • Tax Advantages – You may be able to write off leasing expenses, especially for business purposes.

Understanding Car Financing

When you finance a purchase, your monthly loan will include principal and interest. The average loan spans 68 months. Higher credit ratings quality you for lower interest rate loans. You'll get a better loan when you have good credit.

Financing is a good option for those who want to keep their car for a long time, or at least longer than the typical lease term of three years. The main benefit to financing is that as you pay off the loan, you're building equity in your vehicle. You can use that equity to buy a new car when you're ready.

The Benefits of Financing a Car

  • If you drive a lot, financing is a better option than leasing. You can drive as many miles as you want without the worry of exceeding lease mileage restrictions.

  • When you finance, you can modify or customize your car to your heart's content.

  • Once the loan is paid off, you own the car in full and have no more monthly payments. As long as you lease, you'll always have monthly payments.

Leasing vs. Financing: How They Compare

Is it better to buy or lease a car? Leasing is more expensive than buying. In fact, two back-to-back 3-year leases will end up costing you thousands more than buying a car. This comparison of pros and cons will help you decide between leasing vs financing a car:

Up-Front Costs

  • Buy: You'll pay a down payment, sales tax, registration, and other fees.

  • Lease: You'll pay the first monthly payment, refundable security deposit, acquisition fee, taxes, and possibly other fees.

Monthly Payments

  • Buy: Expect to pay higher loan payments when you buy.

  • Lease: Monthly lease payments usually are lower than loan payments.

Vehicle Return

  • Buy: You can pay off the loan and sell whenever you want.

  • Lease: At the end of the lease term you return the vehicle, less any fees. If you try to end the lease before the term, charges can be as expensive as if you kept the contract.

Future Value

  • Buy: Although your vehicle will depreciate, you'll have the equity of its cash value.

  • Lease: You'll have no equity in the vehicle.

Mileage

  • Buy: You can drive unlimited miles, however higher mileage will lower your car's resale or trade-in value.

  • Lease: You'll pay a fee for exceeding typical mileage limits of 10,000 -15,000 miles.

Wear and Tear

  • Buy: Excessive wear and tear may lower your resale or trade-in value. You can customize and modify all you want, but be aware it could void your warranty.

  • Lease: You'll pay penalty fees for excessive wear and tear.

Modifications

  • Buy: You can customize and modify all you want.

  • Lease: If modifications were made, the car must be returned to showroom condition in order to avoid penalty fees.

End of Term

  • Buy: You'll enjoy equity with no further fees or charges when the loan is paid off.

  • Lease: When the lease term ends, you can lease again or buy another car.

Leasing vs. Buying an Electric Vehicle (EV)

You qualify for a $7,500 federal tax credit when you lease an EV. When you buy an EV, you'll need to meet federal requirements to qualify for the same tax credit that a leased EV gets. Buyers must meet requirements that include the buyer's income level, the EV's cost, and where the EV was made.

EV technology is evolving rapidly. Outdated technology will reduce the resale value when you go to sell your purchased EV. Buying an EV may offer long-term benefits but leasing offers the ability to regularly upgrade to newer technology.

To Lease or Finance a Car?

Ultimately, after you review the pros and cons of our side-by-side comparison, the final decision is up to you. To lease or finance a car requires a solid understanding of your personal needs. No one knows your lifestyle, driving needs, and budget better than you do!

Lease – With a lease, you'll have lower monthly payments and care-free maintenance. A lease is worthwhile if you don't drive a lot and enjoy sitting behind the wheel of a new car every few years. Our Car Leasing Mastery guide will help you negotiate the best lease deals.

Financing – With financing, you'll have higher payments but will eventually own the car outright and enjoy the value of your equity. Financing is a better option for drivers who don't care about driving a new car every few years, who put on lots of road miles yearly, and want the freedom to customize or modify their vehicles.

Get Started with AutoBandit

Find out how AutoBandit can help you find leasing and buying options that are personalized specifically to your needs. Save with our transparent auction system that includes deep discounts. We apply all rebates and incentives automatically when you bid, win, and drive.

We invite you to browse our current deals or request a custom quote for the car make and model that you're dreaming to drive. All of your options are out on the table when you take advantage of AutoBandit's leasing and financing tools. We pride ourselves in transparency, fairness, and superior customer service. Drive off in your dream car today!