Is It Better to Lease or Buy a Car?

How Does Leasing a Car Work?

When you lease a car, you're essentially renting it for a set period—typically two to four years. Instead of paying for the entire vehicle, you only pay for the depreciation that occurs during your lease term. Your monthly payment is based on the difference between the car's value when you lease it and its projected residual value when you return it.

At the end of your lease, you have three options: Return the vehicle to the dealership and buy a different vehicle, purchase the leased car for the predetermined residual value or lease a new car. Most leases include mileage limits (usually 10,000 to 15,000 miles per year) and require you to maintain the vehicle in good condition.

Learn more: How Much Do Cars Depreciate per Year?

Benefits of Leasing a Car

Leasing can be attractive if you want lower upfront costs, minimal repair expenses or the flexibility to switch vehicles regularly. Here are the key advantages of leasing.

Certain Costs Are Lower

When you lease a car, you're only paying for the vehicle's depreciation during your lease term. Your monthly payment is based on the difference between the car's initial value and its residual value—what the dealer projects it will be worth when you return it.

This typically results in lower monthly payments compared to auto loans. Leases also often require little to no down payment, and because you're driving a new vehicle, maintenance and repair costs are usually minimal.

Learn more: How Much Does It Cost to Lease a Car?

New Car Experience

With lease terms typically ranging from two to four years, you'll consistently drive a new or nearly new vehicle. This appeals to drivers who want the latest features and technology or those whose jobs require maintaining a professional appearance.

Leasing also allows you to drive a higher-end or larger vehicle than you might be able to afford to purchase outright.

Less Hassle

Returning a leased vehicle is generally more straightforward than selling a car you own. You won't need to prep the vehicle for sale, screen potential buyers, negotiate prices or handle title transfers.

When your lease ends, simply return the car to the dealership. You'll also have the option to purchase it if you've grown attached to it.

Drawbacks of Leasing a Car

While leasing offers advantages, it can cost more over time and comes with restrictions that limit your flexibility. Here are the key disadvantages.

Lack of Ownership

When you lease, you're bound by the terms of your lease agreement. Most leases restrict your annual mileage (typically 10,000 to 15,000 miles per year) and charge fees for every mile over the limit. You also can't modify the vehicle in any way.

Additionally, leases don't build equity you can use toward your next vehicle purchase—though there are a few exceptions to this rule.

Potentially Costlier Overall

If you buy a car and pay off the loan, you can drive it payment-free for as long as it runs. With leasing, you'll always have a monthly payment since you're continually moving from one lease to another.

You may also face end-of-lease charges for excess mileage or wear and tear that exceeds normal use.

Complicated Terms

Lease contracts contain extensive fine print that can be difficult to navigate. If you prefer straightforward ownership without navigating detailed restrictions, buying may be the better option.

Learn more: How to Get Out of a Car Lease

How Does Buying a Car Work?

When you buy a car, you either pay the full purchase price upfront or finance it through an auto loan. With financing, you make a down payment and borrow the rest from a lender.

Your monthly loan payments cover both the principal and interest charges. Unlike leasing, these payments build equity in the vehicle. Once you pay off the loan, you own the car outright and can keep it, sell it or trade it in.

You can buy either a new or used vehicle, and there are no mileage limits or restrictions on modifications during or after the loan term.

Benefits of Buying a Car

While buying costs more upfront, it offers greater flexibility and can be more economical over time. Here are the main advantages.

Car Ownership

Even while you're paying off your loan, you have complete freedom to modify your vehicle and drive unlimited miles. Your only obligations to the lender are maintaining full coverage insurance and keeping up with loan payments.

Once you pay off the loan, you own the car outright with no further restrictions.

Cash for the Next Car

If you sell or trade in your car while you still owe money on it, any positive equity goes toward your next vehicle's down payment. This can significantly reduce your upfront costs on your next purchase.

You can also access your equity through a cash-out refinance loan if you need funds but want to keep the car.

Lower Costs Over Time

After paying off your auto loan, your only expenses are maintenance and repairs, assuming you don't replace the vehicle and loan with new ones. You can drive the vehicle for years without the ongoing costs associated with continuous leasing.

You also avoid end-of-lease fees for mileage overages or excessive wear and tear.

Drawbacks of Buying a Car

While buying can save you money long term, it comes with higher short-term costs and additional financial risks. Here are the key disadvantages to consider.

Higher Upfront Costs

Buying a car typically requires a more substantial down payment than leasing—often 10% to 20% of the purchase price. If you're short on cash or don't want to drain your savings, securing a loan with favorable terms may be challenging.

Higher Monthly Payments and Repair Costs

Auto loan payments are generally higher than lease payments since you're financing the vehicle's full purchase price. Additionally, if you keep the car for several years, you'll face increasing maintenance and repair costs—especially once the manufacturer's warranty expires.

Learn more: How to Plan for Monthly Car Costs

Depreciation

Most vehicles depreciate over time, whether new or used. If your car's value drops faster than you pay down your loan, you could end up owing more than the vehicle is worth. This negative equity becomes a problem if the car is totaled in an accident or repossessed—you'll need to pay the lender the difference in a lump sum.

Is It Cheaper to Lease or Buy a Car?

In the short term, leasing is generally cheaper due to lower down payment requirements, reduced monthly payments and minimal maintenance costs.

According to Experian's State of the Automotive Finance Market Report for the third quarter of 2025, the average lease payment was $596 per month, while the average payment on a new car loan was $748.

Leasing remains a popular option, particularly for higher-end vehicles. For example, while roughly 23% of all new vehicles are leased, that percentage jumps to nearly 57% for electric vehicles (EVs). If you want to try an EV but aren't sure if you want to commit long term, a lease can be a better option.

Over the long term, though, buying can save you more money because you retain all the equity you build as you pay down the loan. Once you pay off the debt, you own the car outright and eliminate monthly payments entirely.

Ultimately, the cheaper option depends on how often you replace your vehicles. To estimate costs for your specific situation, consider using an online leasing versus buying calculator.

Is It Better to Lease or Buy a Car?

The right choice between leasing and buying depends on your financial priorities, driving habits and lifestyle preferences. Neither option is universally better, and what works best for you comes down to how you use your vehicle and what you value most.

When It May Be Better to Lease a Car

• You want a new car every few years. Leasing allows you to drive the latest models with updated technology and safety features without the hassle of selling or trading in your vehicle.
• You prefer lower monthly payments. Since you're only paying for the vehicle's depreciation during the lease term, monthly lease payments are typically lower than loan payments for the same vehicle.
• You want minimal maintenance costs. New leased vehicles are usually covered by the manufacturer's warranty throughout the lease term, keeping repair costs low or nonexistent.
• You drive 12,000 to 15,000 miles or less annually. Most leases include mileage limits in this range. If your commute is short or you don't take frequent road trips, you can stay within these restrictions without extra fees.
• You have good credit. Leasing companies typically require good to excellent credit scores to qualify for the best lease terms and rates.
• Building equity isn't a priority. If you're not concerned about owning your vehicle outright or using it as a trade-in later, leasing provides flexibility without the commitment of ownership.

When It May Be Better to Buy a Car

• You want to keep your vehicle long term. Buying makes financial sense if you plan to drive your car for many years, especially after paying off the loan, when you'll have no monthly payments.
• You're considering a used vehicle. Leasing is typically only available for new cars, so buying is your only option if you want a pre-owned vehicle at a lower price point.
• You want to build equity. Each loan payment increases your ownership stake in the vehicle, giving you trade-in value or cash when you're ready for your next car.
• You drive more than 15,000 miles per year. Buying eliminates mileage restrictions, so you can drive as much as you need without worrying about excess mileage fees.
• You want the freedom to customize. Ownership allows you to modify your vehicle however you like, from performance upgrades to cosmetic changes.
• You want lower costs over time. While monthly payments are higher initially, buying can save you money in the long run since you'll eventually own the vehicle outright and eliminate monthly payments.

Frequently Asked Questions

Check Your Credit Before You Buy or Lease

Regardless of how you decide to acquire your next car, know what your credit looks like before you start the process. You can check your FICO^® Score^Θ for free with Experian and get a high-level look at which factors are influencing your score.

You can also review your free Experian credit report to get a deeper understanding of your credit profile and look for ways to improve your credit before you lease or buy.