Should You Lease a Car or Get a Loan?

On This Page

• Differences: Leasing and Owning
• Upfront Fees: Breaking Down Costs
• How to Choose: Pros and Cons
• What to Do at the End of Your Lease
• Tips for Immigrants and Expats
• Resources
• Considerations for Seniors
• Business Use and Tax Benefits
• Leasing Lingo

If you’re in the market for a new car, chances are you’re wondering if it’s better to buy or lease. While there’s no right or wrong decision, the investigation requires time and research. Get unbiased information on the pros and https://paydayloansmichigan.org/cities/frankfort/ cons of each and see what experts have to say so you can figure out whether leasing or buying is the right choice for you.

The Majors Differences Between Leasing and Owning a Car

It takes some research to make a savvy decision about buying vs. leasing. Use the table below to learn about the major differences between leasing and purchasing a vehicle.

Monthly payments are typically lower than car loan payments because you are not paying for the total price of the vehicle. However, the monthly finance charges are higher.

Leased vehicles are typically under a maintenance contract, and you only pay for routine maintenance such as oil changes and tire rotations.

As the owner, you’re responsible for all maintenance. Some loan agreements include more comprehensive service agreements for an additional charge.

You are responsible for keeping the vehicle in good shape and can be charged extra for excessive wear and tear. These details are typically outlined in the lease agreement.

Wear and tear won’t affect your loan but could lower the vehicle’s overall value, which would cost you if you eventually want to trade it in or sell it.

Leases have mileage limits, typically around 10,000 or 12,000 miles per year. At the end of your lease, you’ll have to pay extra for every mile you go over the limit – usually anywhere between $0.15 to 0.30 per mile.

You can drive as many miles as you want, but excessive mileage can lower the car’s resale or trade-in value.

You do not own the vehicle, but you make payments to use it during the lease term. At the end of the term, you must return the vehicle unless you decide to purchase it.

You own the vehicle and make monthly loan payments to pay it off. After completing the payments, it’s all yours.

Upfront Fees: Breaking Down the Closing Costs

Whether you’re planning to buy or lease, you’ll have to pay some upfront costs, some of which apply to both leasing and buying. Others, however, may be avoided, depending on which option you choose. Here’s a general breakdown of what you can expect:

Closing Costs & Fees

Also known as a “bank fee,” the acquisition fee is charged by the leasing company to establish the lease agreement. This amount can range from a few hundred to a thousand dollars, and can be included with the down payment or rolled into the monthly payments.

Just like renting an apartment, a car lease has a security deposit that covers any damage you may do to the vehicle. It’s typically equal to one month’s payment. If you return the car in proper shape, the security deposit is refundable.

Usually a few hundred dollars, you’ll be charged this fee if you return the car instead of purchasing it at lease-end. The amount will be stated in your lease agreement and goes to the leasing company.

Almost every state charges a sales tax for vehicle leases and purchases. Most states charge based on the size of the lease, but a few charge based on the full sales price of the vehicle.