back to articles | December 31, 2018 | Greg Thibodeau

Categories: Buying & Selling Cars Leasing a Car Vehicle & Buying Research

Buying vs. Leasing

Differences Between Buying and Leasing

The main difference between buying and leasing an automobile is when you buy an auto, you own it and get to keep the vehicle once the contract is fulfilled. When you lease an automobile, you are borrowing the vehicle and must return it once the lease has expired, unless you choose the buyout option.

Other differences between buying and leasing include up-front costs, monthly payments, vehicle return and early termination, future value, mileage charges, excessive wear and tear and end of term buyout.

Buying vs. Leasing: Up-Front Costs and Down Payments

The up-front costs and down payments for leasing can be more than with buying a new car. When buying a vehicle costs include the cash price or down payment, taxes, registration and other fees and charges. Up-front costs for leasing may include the first month's payment, a refundable security deposit, a capitalized cost reduction (like a down payment ), taxes, registration and other fees and charges.

Buying vs. Leasing: Monthly Payments

When you compare monthly payments for buying vs. leasing, the leasing payments are usually lower, buy you don't get to keep any equity in the car. Monthly loan payments for buying the auto include the entire purchase price and interest along with other finance charges, taxes, and fees. With lease payments, you are paying only for the vehicle's depreciation during the lease term plus rent charges (like interest), taxes and fees.

Buying vs. Leasing: Vehicle Return and Early Termination

Depending on your circumstances, vehicle return and early termination may be either an advantage of disadvantage. You may return the car at lease-end, pay any end-of-lease costs, and walk away. If you no longer wish to drive the car before the end-of-lease, you can still turn the car back in but not without an early termination charge. If you buy a car, you are responsible for the pay-off amount. You may sell or trade the car whenever you wish to change vehicles.

Buying vs. Leasing: Future Value

The leasing company has the risk of the future market value of the car when leasing, with buying a car, the buyer has the same risk when they choose to decide to sell or trade.

Buying vs. Leasing: Mileage Charges

Most leases limit the number of miles you may drive during the term of the lease. If you buy, you do not have to worry about mileage or any charges you may have to pay for exceeding the lease limitations.

Buying vs. Leasing: Excessive Wear

While it will affect your trade-in or resale value, excessive wear will not result in extra charges or fees when it comes to buying vs. leasing.

Buying vs. Leasing: End of Term

At the end of a lease (usually 2 to 4 years) you'll still have payments if you choose to buy out your auto lease. At the end of a loan (usually 4 to 6 years) you'll own your automobile and no longer have monthly payments.

Final Tips on Buying vs. Leasing

Many people don't realize that even if they prefer leasing to buying, they are not obligated to pay the sticker price. You can negotiate with the dealer on an auto lease the same way you negotiate buying an automobile. Don't focus solely on the monthly payments but understand the capitalized costs, residual value and the interest rate.

Before leasing, we at recommend comparing the total cost of leasing to that of buying an automobile by applying for auto loans online. Our low rates and competitive terms may not change your mind about leasing, but it will help you compare the difference between monthly payments of buying vs. leasing.