Car Lease Or Purchase: Pros And Cons

If you want to drive a new vehicle, you have two options: a car lease and purchase. Both will give you a set of wheels for monthly payments, but that's pretty much where the similarities end. There are many significant differences between a car lease and purchase, so anybody in the market for a new car should consider the pros and cons of each option.

Lease

Pros

• Less money due up front (usually no down payment required)
• Less hassle with repairs and maintenance
• Less tax cost
• Lower monthly payments
• Ease of frequently getting a new vehicle

See the latest car lease deals >>

Cons

• Vehicle is not owned
• No option of selling/trading-in the car
• Vehicle cannot be modified (window tints, bodywork, sound system, etc.)
• Mileage limits are imposed
• Early terminations can be costly
• Auto gap insurance is always needed

Purchase

Pros

• Ability to own the vehicle
• Vehicle can be modified as the owner prefers
• No mileage limits and excess mileage charges
• Car can be sold/traded-in if owner prefers
• Can give you the best long-term value for your money
• Possibility of allowing owner to be free of monthly payments

Cons

• Higher monthly payments
• Large sums of cash required for down payments
• Car depreciation can hurt your pocketbook
• Repair and maintenance expenses can be costly once the warranty expires

When a vehicle is leased, the lessee pays a monthly fee for the use and depreciation of the car. The lessee will have to keep the car's mileage under a certain limit per year (usually between 12,000 to 15,000 miles) if he or she does not want to be subject to overage charges. The lessee is also not able to modify the car or burden it with excess wear and tear. However, a leased vehicle may be ideal for people who do not put a lot of miles on their cars and would like to drive a new car every few years. Additionally, because the lessee is not paying for the full value of the car, he or she will save some money on taxes. Finally, because most auto lease terms run consistent with a new car's manufacturer warranty, a lessee should not have to pay for a car's maintenance costs. It should be noted that a leased car is not owned, but a lessee may have the potential to execute a buyout, where he or she can purchase the car for its residual value. However, the residual value is usually an inflated number compared to the car's actual worth, and the buyer would subsequently not be getting a good deal.

Somebody who purchases a vehicle has more freedom than someone who leases. Car buyers do not have to conform to any mileage restrictions, and they can modify their cars however they please. Owners also have the option of trading-in, selling the car, or paying off the car and be free of monthly payments. However, such freedom comes at a cost. Car purchases usually require a good chunk of cash for a down payment, and owners usually have to pay more money per month for an auto loan. A car's rate of depreciation can also affect a buyer's future financial situation, and owners need to be prepared to face out-of-warranty maintenance and repair expenses.

Deciding between purchasing and leasing a car is an involved task, but it should not be too daunting if you correctly analyze your financial situation, your driving requirements and preferences. Using the pros and cons of each, determine which option is best for you.