Last updated: 27 Sep 25 06:53:01 (UTC)
Leasing vs Buying a Car
My article below is intended for individuals, not businesses or “fleets”.
This decision often hinges on your lifestyle, driving habits, budget, and long-term goals. Leasing typically involves lower upfront and monthly costs but no ownership, while buying builds equity over time.
| Aspect | Leasing Advantages | Leasing Disadvantages | Buying Advantages | Buying Disadvantages |
|---|---|---|---|---|
| Upfront Costs | Lower down payment (often $0–$3,000) and no large initial outlay. | May include acquisition fees, first month’s payment, and security deposit upfront. | Potential for no down payment with financing, but often requires 10–20% down. | Higher initial costs if paying cash or financing a large loan. |
| Monthly Payments | Generally lower (e.g., $300–$500 for a mid-range sedan) since you’re paying for depreciation, not full value. | Payments don’t build equity; you’re essentially renting. | Higher if financed (e.g., $400–$600+), but payments go toward ownership. | Can strain cash flow, especially with high interest rates (currently 5–8% on average for new cars). |
| Ownership & Equity | N/A—You return the car at lease end; easy to upgrade to a new model. | No ownership; must return or buy out at end (often at a premium). | Full ownership after payoff; build equity that can be sold or traded. | Depreciation reduces value quickly (up to 20–30% in first year); potential negative equity if selling early. |
| Mileage & Usage | Ideal for low-mileage drivers (leases often cap at 10,000–15,000 miles/year). | Strict mileage limits with overage fees (e.g., $0.15–$0.30 per mile); restrictions on modifications. | Unlimited mileage and full customization freedom. | Higher long-term maintenance if driving extensively. |
| Long-Term Costs | Lower short-term costs; predictable expenses. | Potentially higher overall if leasing repeatedly (no asset at end). | Can be cheaper long-term if keeping the car 5+ years (no ongoing payments). | Opportunity cost of tying up capital in a depreciating asset. |
| Tax & Incentives | Possible tax deductions if used for business; some EV leases qualify for rebates. | Sales tax often rolled into payments (varies by state). | Full ownership allows for resale tax benefits; EV purchases may get tax credits. | Upfront sales tax on full purchase price in most states. |
| Flexibility | Easy to switch cars every 2–4 years; good for those who prefer new tech/features. | Early termination fees can be steep (thousands of dollars). | Sell or trade anytime; keep indefinitely without penalties. | Committed to the car; selling early may result in losses due to depreciation. |
Summary
Leasing suits those who prioritize low payments, new cars, especially if you drive under 12,000 miles/year. Buying is better for long-term ownership, high-mileage drivers, or if you want to avoid perpetual payments, and if you want to customize your car such as a tow hitch, racks, re-painting or if you have cosmetic damage that you don’t want to fix.
- The mileage penalty on leases is a problem if you drive more than 8k, 10k or 15k miles per year. The higher the mileage allowance the more expensive the lease.
- If you damage the car or make quasi-permanent modifications (tow hitch, racks, re-painting), you have fix/un-do these before turning in the car at the end of lease.
- When the lease is over you may want to keep the car. But to do so you have to pay.
- When buying/financing, in 48-60 months the payments stop but you keep the car.
- Of course, you don’t buy a car as an investment, but there is some asset-value left when the loan is complete if you want to sell it or trade it in (or give to a family member).
"I have owned six cars and two motorcycles thus far in my life. All have been financed and I’ve kept all of them after their loan was paid off. One of the cars got passed down to my son with no payment on it." -Michael
My Thoughts
Allow me to real for a moment. Having worked with hundreds of clients in my 36+ years in the investment industry I’ve realized that much of financial planning is behavioral and emotional, not merely mathematical. So, in regards to buying vs leasing a car what is often really happening is that the client wants the most car for the amount they can just barely afford. For example, if a particular car costs $550 / month when buying and $310 when leasing, many people will lease it because they can’t afford $550! To approach the comparison with honesty the client should be able to afford the “buying price” easily.
My recommendation is to treat a car like your phone. Buy a good, solid, dependable mid-range range car (or phone) and keep it until it dies (at least few years after the payments stop) then repeat. Never buy the top-of-the-line and don’t lease/rent it.