At WiseGEEK, we're committed to delivering accurate, trustworthy information. Our expert-authored content is rigorously fact-checked and sourced from credible authorities. Discover how we uphold the highest standards in providing you with reliable knowledge.
When you’re looking at acquiring a new car, you may have two options for financing. One option, buying the car, means that you will make payments over four to five years that include interest payments on amounts owed. When you finish making payments, the car is yours to sell or keep. The other option is to lease a car, which means that you will technically be renting the car. You payments cover the amount the car will decrease in value over the length of the lease. This usually means you will make smaller payments, but when the lease expires, you won’t own the car.
There are many things to consider when you are deciding to buy or lease a car. Leases tend to have very rigid requirements. You may be required to service the car regularly, and put no more than 10,000-15,000 miles (about 18- 27 thousand km) on the car per year. You will be expected under most circumstances to keep the car and make payments for the length of the lease. You usually need better credit if you want to lease a car because your down payment is smaller than it would be if you purchased a car.
The biggest difference is the fact that you will pay money for use of a car you will not own. While this might make sense if you only want a car for a short period of time, about two or three years, you are still only paying to borrow the car. You can buy the car at the expiration of your lease but you may need a larger down payment or a significant amount of cash for its purchase. It’s just important to remember you’re not building any equity in the car you lease, while over time you can recoup some of your interest payments by selling the car you are buying.
One thing to consider is if you like to change cars frequently or if you really do want to keep a car for a long period of time. Even if car payments to buy a car might be higher, if you really want to keep the car, you’ll usually pay less money to simply buy it outright or through payments. Several years of lease payments and then several more years of car payments typically mean you’ll pay more over time for your car. On the other hand, if you like to get a new car model every few years, it may make more sense to lease a car for a couple of years.
If you commute long distances, then a lease is probably not a good idea. You’ll easily exceed the mile limits on the lease, which can mean paying a lot more in fees. Another thing to think about is how good you are at keeping your car properly maintained. If you’re not good about getting the oil changed or getting a car serviced, you can be charged more by the lease company. Some leases offer these services for free, but you still need to take the time to get these services for the car.
Some leases are constructed with airtight laws regarding returning the car. If you’re not reasonably certain that your health will stay good and that you’ll be able to maintain payments for the length of the lease, this can be very costly. You should have reasonably good health if you want to lease a car over a long period of time. Leases are typically not recommended for people nearing the end of their lives because they can prove nightmarish to deal with when an estate must be settled.
In the end, it generally makes financial sense not to lease a car, though lease prices seem very attractive. The question is similar to whether you should rent or buy a house. While rent prices may be lower, you’re only getting use of that house for the time you rent it. With a leased car, you’re only getting use of that car during the lease terms. From a financial perspective, you will tend to save more money if you buy rather than lease a car, though people in certain circumstances may find a lease more suited to their needs.