Leasing vs. Buying a Car: Which Costs Less?

I have not owned a car of my own ever. Yes, my parents had cars when I was growing up, but I, myself, never had a car of my own. However, with my health situation the way it is, there's a bigger and bigger chance I'll be getting a car in the future. So I'm happy to have this information from a reader on whether it is more cost efficient to lease or buy a car. 

Car ownership has long been a core aspect of American life. But leasing has been steadily growing in popularity. While leasing does have its benefits, is it actually cheaper than buying a car outright?

Leasing a Car

Let's look at the differences between leasing and buying a car — but first, let's establish what leasing means. A car lease is a type of financing, which allows you to drive a car for a certain length of time and / or mileage. You make monthly payments on the car, just as you would if you were buying it. At the end of your lease period, you can either buy the lease and keep the car, or return the vehicle (and possibly lease a new one).

Pros

Lower monthly payments. You'll generally pay less per month for a leased car, mostly because the payments you make are based on the depreciation of the vehicle over time, rather than payments based on the vehicle's full value (as you'll be paying when you buy a car).

No down payment. While you will need good credit to lease a car, you probably won't need a down payment, as you would with a straight purchase. All the same, you should look at your budget, check your priorities, and make sure you have the financial means to lease a car, even if the payments might be lower.

Driving a nicer car. The lower rates and lack of a down payment might enable you to pick a more up-market vehicle to drive. In a sense, leasing is basically renting a new or near-new car over a long period of time, and you might as well make the experience a pleasurable one.

No reselling. When the lease is over, you can take the car back to the dealership and turn it in — and that's it! No need to try to sell the car to a third party, put ads on Craigslist, or anything else. The dealership takes care of everything for you.

Lower maintenance costs. Since your car will be under warranty for the entire duration of the lease, you'll pay far less in repair costs.

Cons

Acquisition fees. Though you don't have to make a down payment per se when leasing, you may have some extra up-front costs, such as an acquisition fee.

You don't own it! While you do have the option of buying your car at the end of the lease period, you'll have to return it when the lease agreement ends if you decide not to.

Mileage restrictions. Many lease agreements have a restriction on mileage, and you may have to pay a penalty if you exceed said mileage.

Buying a Car

Pros

It's yours! Once you pay off your car, it's yours. There are no more monthly payments to make, which gives it one major advantage over leasing — when you're done paying, you're done. No mileage restrictions. You decide how much you drive.

Sell whenever you want. Even if you're not done paying it off, you can sell your car if you choose.

More freedom. You can customize or alter the car any way you see fit.

Equity. You'll likely build up some equity over the life of the loan, which is another big long-term advantage over leasing.

Cons

The dreaded down payment. Assuming you can't buy your car outright (and most of us can't), you'll have to make a down payment.

Monthly payments are higher. The monthly payments are the one area where leasing wins hands-down.

You may pay out of pocket for repairs and maintenance once the warranty expires on your vehicle.

Depreciation may drive down the cost of your vehicle should you decide to sell it — a drawback not relevant when you lease.

Other Factors to Consider

As you might expect, car insurance is mandatory whether you're buying or leasing. With a leased car, the dealership will include GAP coverage, collision, and comprehensive. With a bought car, you can choose to switch to the minimum liability coverage only (depending on the laws in your state). Whichever option you choose, be sure to shop around for the best insurance rate.

So Which is Cheaper?

As with so many questions, the answer is: it depends!

Leasing a car is undoubtedly cheaper in the short term, since the monthly payments are low and your maintenance is covered under warranty.

But buying might be cheaper in the long run, since you're likely to still be using the car after you pay it off, and won't have to make futher payments on it. You also have much more freedom when it comes to your vehicle.

Leasing has some definite perks. But most likely, you'll pay more in the long term by leasing a car than you will buying it. The fees, penalties, and restrictions, plus the necessity to make payments as long as you want to use the car, make buying the less expensive option.

Do you lease or own a car? Why did you pick the option that you did?