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Smart Buyer's Guide to Buying or Leasing A Car

Previous:
Should You Buy New or Used?

Next:
Which Type of Car Suits You Best?

Should You Buy or Lease a Car?

Regardless of whether you choose a new or pre-owned car, you also need to decide whether to buy or lease:

When you buy a car: You pay in full for the car at the time of purchase with either your own money, an auto loan, or a combination of the two. Once you’ve paid off your loan (if any), you own the car outright.
When you lease a car: You pay an initial down payment (also called a capital reduction), then make monthly payments for the term of the lease. A lease usually lasts 2, 3, or 5 years and includes various restrictions, such as annual mileage limits.

Buy a Car vs. Lease a Car

The table below sums up the pros and cons of purchasing and leasing. Which option you choose depends on a variety of factors, including your budget and the number of years you plan to keep the car.

Factor		Buy vs. Lease
Ownership costs		Buying often requires a higher up-front payment, whereas leases require little or no money up front. Depreciation takes 20–30% off of a car’s value upon purchase. Depreciation is not a factor if you lease.
Operating costs		If you buy, you’ll care about the car’s longevity and will likely spend more on maintenance. If you lease, you can do the bare minimum maintenance.
Mileage restrictions		Leases usually limit your “free” mileage to 12,000–15,000 miles per year. Beyond that, you pay for each mile.
End-of-lease terms		At the end of the lease, you must pay for any signs of excessive wear and tear, and you don’t own the car.

The Bottom Line: Buy or Lease?

Factoring in all ownership and operating expenses, leasing is usually far more expensive than purchasing a car. Leasing is probably not the best option unless you must have a new car every three years or so, or you drive fewer than 12,000–15,000 miles a year.

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