Leasing vs. Buying: What’s the difference?
What's the difference between leasing vs. buying? Buying a car means that the driver owns the vehicle they purchase. There are no limits on how far or how often they can drive it. And they can customize or resell it if they want. When leasing, a driver pays a monthly fee to drive what's typically a newer car. At the end of the lease term, the vehicle is returned to the dealership.
Free Car Insurance Comparison
Compare Quotes From Top Companies and Save
Secured with SHA-256 Encryption
Laura Gunn
Insurance and Finance Writer
Laura Gunn is a former teacher who uses her passion for writing and learning to help others make the best decisions regarding finance and insurance. After stepping away from the classroom, Laura used her skills to write across many different industries including insurance, finance, real estate, home improvement, and healthcare. Her experience in various industries has helped develop both her ...
Insurance and Finance Writer
UPDATED: Jan 27, 2024
It’s all about you. We want to help you make the right coverage choices.
Advertiser Disclosure: We strive to help you make confident auto insurance decisions. Comparison shopping should be easy. We are not affiliated with any one auto insurance provider and cannot guarantee quotes from any single provider. Our auto insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different auto insurance companies please enter your ZIP code on this page to use the free quote tool. The more quotes you compare, the more chances to save.
Editorial Guidelines: We are a free online resource for anyone interested in learning more about auto insurance. Our goal is to be an objective, third-party resource for everything auto insurance related. We update our site regularly, and all content is reviewed by auto insurance experts.
UPDATED: Jan 27, 2024
It’s all about you. We want to help you make the right coverage choices.
Advertiser Disclosure: We strive to help you make confident auto insurance decisions. Comparison shopping should be easy. We are not affiliated with any one auto insurance provider and cannot guarantee quotes from any single provider. Our auto insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different auto insurance companies please enter your ZIP code on this page to use the free quote tool. The more quotes you compare, the more chances to save.
On This Page
- A vehicle that a driver purchases can be driven, customized, modified, or resold at any time. An automobile can be bought with a single payment or paid for over time with a loan (financed)
- A leased vehicle is one that a driver pays a monthly fee to drive. Once the lease term ends, the driver must return the automobile to the dealership, as drivers often trade in one leased automobile for another
- Buying a car is ultimately almost always more affordable than leasing. Drivers might lease a vehicle if they merely need a car for a year or two or if they enjoy trading in their old vehicle for a new model every few years
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.
Compare Quotes From Top Companies and Save
Secured with SHA-256 Encryption
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. (For more information, read our “Financed vs. Leased: What’s the difference?“).
- 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.
Frequently Asked Questions
What is leasing?
Leasing is a form of renting a vehicle for a specific period, typically a few years, with monthly payments. At the end of the lease term, you return the vehicle to the leasing company.
What is buying?
Buying refers to purchasing a vehicle outright, either with cash or through financing. Once you complete the payment, you become the owner of the vehicle.
What are the main differences between leasing and buying?
The main differences are ownership, monthly payments, mileage restrictions, customization options, and long-term costs.
What are the pros of leasing?
- Lower monthly payments: Leasing often requires lower monthly payments compared to buying, as you’re only paying for the depreciation during the lease term.
- Less maintenance responsibility: Since leases typically last for a few years, the vehicle is usually covered under the manufacturer’s warranty for repairs and maintenance.
- Ability to drive a new car more frequently: Leasing allows you to drive a new vehicle every few years without the hassle of selling or trading in.
What are the cons of leasing?
- No ownership: When leasing, you don’t own the vehicle, and you have to return it at the end of the lease term.
- Mileage restrictions: Leases often have mileage limits, and exceeding those limits can result in additional fees.
- No customization: You’re generally not allowed to make any modifications to a leased vehicle.
- Long-term costs: While monthly lease payments may be lower, the long-term costs can add up if you consistently lease vehicles without ever owning one.
What are the pros of buying?
- Ownership: When you buy a vehicle, you become the owner and have the freedom to keep or sell it as you please.
- No mileage restrictions: There are no mileage limitations when you own a vehicle, allowing you to drive as much as you want.
- Customization: As the owner, you can modify and personalize the vehicle to your liking.
- Long-term savings: While monthly payments may be higher initially, once the loan is paid off, you no longer have to make payments, resulting in long-term savings.
What are the cons of buying?
- Higher monthly payments: Compared to leasing, buying typically involves higher monthly payments since you’re paying for the full purchase price of the vehicle.
- Maintenance costs: As the owner, you’re responsible for all maintenance and repair costs once the warranty expires.
- Depreciation: Vehicles tend to depreciate over time, and as the owner, you bear the risk of a potential decrease in its value.
Compare Quotes From Top Companies and Save
Secured with SHA-256 Encryption
Laura Gunn
Insurance and Finance Writer
Laura Gunn is a former teacher who uses her passion for writing and learning to help others make the best decisions regarding finance and insurance. After stepping away from the classroom, Laura used her skills to write across many different industries including insurance, finance, real estate, home improvement, and healthcare. Her experience in various industries has helped develop both her ...
Insurance and Finance Writer
Editorial Guidelines: We are a free online resource for anyone interested in learning more about auto insurance. Our goal is to be an objective, third-party resource for everything auto insurance related. We update our site regularly, and all content is reviewed by auto insurance experts.