Leasing a Car Vs Buying a Car

by Neil Kokemuller

Leasing a car means paying a monthly fee for the right to use a car. Buying a car means you own it, though purchases are typically financed through a lender. Each approach to paying for vehicle access has relative benefits.

Why Lease a Car

When you lease a car, you typically only make monthly payments for as long as you drive the vehicle. You don't have the registration, taxes and upfront purchase fees that you would with a purchase, according to Edmunds.com. When you return a leased car and settle any remaining charges, you walk away free and clear, reports Consumer Reports. Leasing protects against the lost value of a purchased vehicle after depreciation. You also have the ability to work out a purchase agreement at the end of the lease in many cases. Edmunds.com notes that people who lease don't have to pay the costs for regular maintenance.

Many leasing companies allow customers to convert their lease into a purchase at the end of the term. As opposed to an outright purchase, you get a chance to drive the car for a few years before making a more extensive investment. Your lease payments apply to the purchase price if you opt to go that route.

Why Buy a Car

Leasing doesn't offer the psychological benefit of owning the car, which is important to some people. To escape your lease, you may also have to pay an early-termination fee. Owners can sell at any time. Leases also have mileage limits, whereas a car owner can drive the vehicle as much as he desires. Car owners can upgrade a vehicle or make changes with greater flexibility than people who lease.

You have greater insurance flexibility and potential savings when buying a car, especially a used one. Leasing companies normally require that you carry full-coverage auto insurance to protect their property, according to Autobytel. In contrast, you only need to meet your state's legal requirements for insurance on a purchased vehicle, which is usually just liability coverage. Typical leasing companies require that you carry gap insurance as well that protects against being underwater on a totaled car. This coverage costs around $30 per year, at the time of publication, but is much more expensive through a dealer, reports Bankrate. You don't usually need gap insurance with a used car, but you may opt to purchase it for a new vehicle that you buy.

Total Cost Comparison

The costs of leasing versus buying vary a bit. Edmunds.com compared total costs for leasing relative to buying a new or used Honda Accord in California. Over a six-year period, leasing was several thousand dollars less than buying a new car, but several thousand dollars more than buying a used car. When you factor in the equity value of selling a car you own at the end of your ownership, leasing does end up having a significantly higher net cost than buying either a new or used vehicle.

About the Author

Neil Kokemuller has been an active business, finance and education writer and content media website developer since 2007. He has been a college marketing professor since 2004. Kokemuller has additional professional experience in marketing, retail and small business. He holds a Master of Business Administration from Iowa State University.