Learning Center

Buying vs. Leasing

Although both choices result in you driving away in the car of your choice, the process involved with buying and leasing are quite different. There are definite advantages to both. But before deciding which makes the most sense for you, there are several things to consider.

The popularity of leasing increased through the 1990s as the cost of new cars skyrocketed. That's because it costs substantially less to walk away with a late-model vehicle lease than a purchase. Today, leasing accounts for about one third of all new vehicle deals.

Points to Consider

How long do you plan to keep the car? The longer you plan to keep your vehicle, the more it makes sense to buy. If you buy your vehicle and keep it until after the loan is paid off, you will benefit from full equity and lowered monthly expenses.

How many miles do you drive a year? If you drive more than 12,000 miles a year, you should consider buying. When you buy, you can drive as much as you like with no penalties. But if you lease and go over the preset mileage limit, you may be subject to steep penalties of up to 25 cents a mile. Also, some lease agreements may charge you for excess wear and tear when you turn your car in -- regardless of how many miles you've driven.

Do you want to customize your car? If you own your vehicle, you can change its appearance in any way any time after you drive it off the lot -- this includes paint jobs, customization, even installing a stereo system. When you lease, none of these changes are permitted.

To Lease or Not to Lease?

Leasing offers low or even no down payment and lower monthly payments (because you aren't paying for the value of the whole vehicle, just the depreciated portion). These lower monthly payments allow you to lease a more expensive car than you could afford otherwise. An added bonus is that you pay less sales tax when you lease because you are only taxed on the years you use the vehicle.

One of the downsides is the fact that once you start leasing, you can count on monthly payments until you get off the leasing merry-go-round. You will not see the benefits of earning any equity in your vehicle as you would if you purchased. Also, if for any reason you need to get out of your lease before its term expires, you will likely have to pay substantial early termination fees or penalties -- sometimes thousands of dollars.

The Final Analysis

You should consider leasing if you don't have a lot of money for up-front costs, if you don't plan to drive long distances, and if you plan to get a new vehicle in two or three years anyway.

On the other hand, if you want to keep the vehicle for as long, or as short, as you'd like, and you want to maintain or customize it in your own way, buying makes sense.

Whether you buy or lease, it is important to know how lenders and leasing companies view you. Credit Report with Score provides you with your Equifax Credit Report¿ and your FICO® credit score, the score used by more creditors than any other to judge you as a credit risk.