[Calculator]: Should you buy or lease your next car?

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Susan Meyer

Senior Editorial Manager

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  • Licensed Insurance Agent — Property and Casualty

Susan is a licensed insurance agent and has worked as a writer and editor for over 10 years across a number of industries. She has worked at The Zebr…

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Ross Martin

Insurance Writer

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  • 5+ years in the Insurance Industry

Ross joined The Zebra as a writer and researcher in 2019. He specializes in writing insurance content to help shoppers make informed decisions.

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You want or need a new car. Time to shop! But unless you have unlimited funds, you most likely think carefully about not just what car is in your budget, but how you want to pay for it. 

If you’re looking at a brand new car, you may consider leasing the vehicle or purchasing and financing a car. Both can have their pros and cons, and the right choice for you depends on your financial situation, driving habits and personal preferences. 

In this article, we'll explore the advantages and disadvantages of buying versus leasing a car and provide key factors to consider before making your decision. We’re also including a calculator to help you figure out what’s right for you.

Lease versus buy calculator

How to use the calculator

Note: This calculator is for estimation purposes only. It does not include a number of factors like sales tax and cannot predict what rate you will be offered. It is solely intended to illustrate some of the differences in monthly payments and cost over a period of time, not to be used by itself to make binding financial decisions.

In order to use the calculator, you will need to know a few things about your financing options:

  1. The cost of the vehicle: To remove a few variables, we're estimating this as the cost you will actually pay after negotiations and trade-ins. 
  2. Down payment: Whether you are financing to purchase or putting a downpayment on a lease, some upfront cash will be required. If you're estimating, lease down payments are typically cheaper than buying and can range from $0 - $3,000.
  3. Loan details: If you are borrowing money to purchase the car, you will need to know the amount you are borrowing (the loan balance), the interest rate and the loan term (how long you will be paying it off). These will all factor into your monthly payment and the amount of interest you will pay over the life of the loan.
  4. Lease terms: You will also need to know the length of the lease you plan to get, the vehicle's residual value (the amount the vehicle will be worth after the lease ends) and the lease factor. A lease factor or money factor is presented as a decimal, and is another way of showing an interest rate. If you're estimating, an average lease factor for someone with fair credit would be .0025. 

By entering in this data you can see the amount it will cost you over the life of the loan or lease and the monthly payments you can expect to pay during that time. 

Pros and cons of buying a car

Purchasing the car and owning it is certainly the most popular choice. In the last year, four out of five cars that were purchased were sold outright.[1] So here are some of the reasons why buying the car (usually through financing) is the choice most people make…and also some of the drawbacks.

Advantages of Buying:

  1. Ownership: When you buy a car, you own it outright once you've paid off the loan or paid in cash. This means you can keep the car as long as you want, and you’re free to customize it or drive as much as you like.
  2. No mileage restrictions: Unlike leasing, where you’re limited by mileage caps, buying a car gives you the freedom to drive as far as you need without worrying about penalties.
  3. Long-term cost savings: Over the long term, buying a car can be more cost-effective. Once the car loan is paid off, you have no monthly payments, and the car is yours to drive without additional costs beyond maintenance and insurance.
  4. Resale value: If you take care of your vehicle, you can sell it down the line and recoup some of your initial investment. This resale value can be used to purchase your next car or for other financial needs.
  5. Customization: As the car’s owner, you can modify it as you wish, whether that means upgrading the sound system, adding custom rims or making other permanent modifications.

Disadvantages of Buying:

  1. Higher monthly payments: Financing a car typically results in higher monthly payments compared to leasing. After all, you’re paying off the total cost of the car, plus interest, over a set period of time.
  2. Depreciation: Cars lose value over time, particularly in the first few years of ownership. With rare expectations, when you decide to sell or trade it in, you will get significantly less than what you originally paid.
  3. Maintenance costs: As the car ages, you’ll bear the full responsibility for maintenance and repairs, which can become costly, especially after the warranty expires.
  4. Down payment: Buying a car often requires a substantial down payment, which can be a financial burden if you don’t have significant savings.

Pros and cons of leasing a car

So what about the one in five people who leased a car last year? Leasing can be a good choice for some depending on their circumstances and preferences. 

Advantages of Leasing:

  1. Lower monthly payments: Leasing generally offers lower monthly payments than financing a car, as you’re only paying for the car’s depreciation over the lease term rather than the full value of the vehicle.
  2. Newer cars, more often: Leasing allows you to drive a new car every few years, which means you’ll always have access to the latest models with the newest technology and safety features.
  3. Limited maintenance costs: Most leases last for 2-4 years, which is typically the period when the car is under warranty. This means you’ll avoid paying for significant repairs or maintenance costs.
  4. No need to worry about depreciation: Since you don’t own the car, you don’t need to worry about its declining value. At the end of the lease, you simply return the vehicle and walk away or lease a new one.

Disadvantages of Leasing:

  1. No ownership: When you lease, you never own the car. You’re borrowing it for its usefulness, not acquiring an asset. Once the lease term ends, you must return the vehicle, which means you’re constantly making payments without building any equity.
  2. Mileage limits: Leases come with mileage caps, typically between 10,000 and 15,000 miles per year. If you exceed this limit, you’ll face hefty penalties at the end of the lease.
  3. Customization restrictions: Since the car doesn’t belong to you, you can’t make any major modifications. The vehicle must be returned in its original condition (minus normal wear and tear).
  4. Long-term cost: While leasing offers lower upfront costs and monthly payments, it can be more expensive in the long run if you continually lease new cars. You’ll always have a car payment and never gain ownership.

Factors to consider when deciding to buy or lease

No one option is best for everyone, so it’s important to consider what factors are most important to you in the car-buying process. 

  1. Budget: One of the most critical factors in your decision is your budget. Leasing typically offers lower monthly payments and may require a smaller down payment, making it more attractive to people who need lower upfront costs. However, buying a car might be the better option for long-term savings if you plan to keep the vehicle for a long time.
  2. Driving habits: How much you drive annually is another key consideration. If you have a long commute or enjoy taking road trips, a lease may not be the best option because of mileage restrictions. On the other hand, if you don’t drive often, a lease might suit your needs.
  3. How long do you plan to keep the car: If you like getting a new car every few years and enjoy the latest technology, leasing might be a better fit. However, if you prefer to drive your car for many years and avoid a constant car payment, buying could save you money in the long run.
  4. Maintenance preferences: Are you someone who prefers to minimize the hassle and cost of maintaining an older car? Leases typically cover the period when the vehicle is under warranty, so repairs are minimal. But if you don’t mind taking on the costs and responsibilities of an aging car, buying could be a better choice.
  5. Lifestyle needs: Think about your lifestyle and what your future might look like. If your needs are likely to change soon, like needing a larger vehicle for a growing family, leasing offers flexibility. However, if stability is more important to you, buying might offer better peace of mind.

Who is leasing right for?

Low-mileage drivers

Pay attention to your average daily and weekly mileage, considering commutes and long trips. Is it less than 10-15K? If not, leasing might not be a good fit for your lifestyle.

People who like to drive the newest cars

If driving a new car is important to you, leasing is definitely more cost effective than buying and selling cars every few years.

People who want a fancier ride

If you’ve got champagne tastes on a beer budget, the lower monthly payments and lack of a big down payment, can put some pricier vehicles in reach.

Who is buying right for?

High-mileage drivers

If you don’t want to feel impeded by mileage limits, your best bet is to own your vehicle.

People who don’t mind driving an older vehicle

If you’re planning to keep your car for a long time and don’t mind doing the maintenance for the vehicle, you can save significantly long-term.

People who can afford the upfront costs

If you have the money for the down payment and can afford the monthly payments comfortably, buying the car and acquiring a new asset can set you up better financially down the road.

Wrapping up

Buying a car is a big decision. We have some other great calculators and resources to help you decide what car is right for you. 

And, of course, however you acquire your next vehicle, when it comes to shopping for insurance, you know where to look!

Sources
  1. Statistics on leased versus purchased outright cars. [Statista]