Shopping for a new car involves multiple decisions. Picking the right financing option is one of the most important.
Leasing and buying both have trade-offs. Costs, fees and insurance requirements differ between the two.
Should You Lease a Car or Get a Loan?
Updated: July 30, 2026
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Car Sales and Leases Statistics in the United States
Car Sales and Leases Statistics in the United States
U.S. car sales and lease data show how the two options compare in popularity and cost.
The country recorded 3,326,000 new passenger car sales and leases in 2021. Of these, 793,000 were leases and 2,533,000 were car sales.
The average monthly lease payment in the second quarter of 2022 was $540, and the average loan payment for a new car was $667 a month.
The Honda Civic is the most leased model in the country, with a 4.5% market share. It’s followed by the Honda CR-V (2.8%), Toyota RAV4 (2.7%), Ram 1500 (2.3%), Honda Accord (2.3%), Chevrolet Equinox (2.2%), Ford F-150 (2.2%), Jeep Grand Cherokee (2.1%), Ford Explorer (1.9%) and Toyota Tacoma (1.8%).
Sources:
Leasing vs. Buying: The Major Differences
Buying means purchasing a car and acquiring ownership by paying a lump sum or in installments. Leasing refers to an agreement that lets you use the lessor's vehicle for a set period in exchange for monthly payments.
Leasing and buying differ across several factors:
Factor | Leasing a Car | Buying a Car |
|---|---|---|
Upfront costs | The amount you need to pay to gain the right to use the car. Upfront costs are usually lower for car leases. | The cost of owning the car. It's usually higher than a lease. Sellers may also require a large down payment. |
Monthly payments | Lease payments are usually lower because you're only paying to use the car, not own it. Watch for high monthly finance charges. | Some buyers choose to take out a loan to finance a car purchase. Loans come with monthly payments, which are usually higher than lease payments. |
Maintenance | Leased vehicles are usually under maintenance contracts. You’re charged only for routine maintenance, such as oil changes and tire rotations. | As the owner, you're responsible for all maintenance costs and fees. |
Wear and tear | The lessee is responsible for keeping the car in good shape. The lessor may charge extra for excessive wear and tear. | Wear and tear won't affect your monthly payments. But it can lower the car's overall value. |
Use or mileage | Car leases have mileage limits, usually around 10,000–12,000 miles a year. Extra charges may apply for every mile over the limit. | There’s no mileage limit since you own the car. But excessive mileage lowers the car's resale or trade-in value. |
Customization | You can't customize or make changes to the vehicle's appearance. Doing so violates your lease agreement and may result in penalties. | Owning the car allows you to customize its appearance and features as you see fit. |
Ownership | You don't own the vehicle. Depending on the agreement, you can return or purchase it at the end of the term. | You own the vehicle once all payments are complete. |
End of the term | At the end of the term, you can return, trade in or buy the vehicle. | At the end of the loan term, you can keep, sell or trade in the car. |
Transfer | You don't own the vehicle, so you can't transfer or sell it. | As the owner, you can transfer or sell the car. |
Parties | Two parties are involved: the lessor (owner of the car) and the lessee (the user). | Two parties are involved: the seller and the buyer. |
Is Leasing a Car a Good Idea?
Leasing a car means renting a vehicle from a dealership for a set period and mileage limit. You pay monthly in exchange for the right to drive it. Whether it's the right fit depends on your driving needs and budget.
True Costs of Leasing a Car
Experian says the average monthly lease payment in the second quarter of 2022 was $540. Actual costs may vary depending on the vehicle model, term and mileage limit. Other fees include the acquisition fee, first payment and security deposit.
Type of Fee | What It Pays For |
|---|---|
Acquisition fee | What you pay the leasing company to establish the lease agreement. Also known as an administrative, origination or bank fee, it ranges from a few hundred to a thousand dollars. You can pay it upfront with the down payment or roll it into monthly payments. |
First payment | Required before you take the car. The amount depends on the vehicle, your location and the dealer. |
Security deposit | Equals about one month's payment and covers any damage to the vehicle. Usually required. |
Disposition fee | At the end of the lease, you can buy or return the car. If you return it, you'll pay a disposition fee, usually a few hundred dollars. |
Sales tax | Leases are subject to sales tax. The amount depends on state regulations. |
Documentation fee | Ranges from $150 to $300 for creating and processing the lease |
Upfront costs | What you pay to use the vehicle. It's similar to a car loan down payment but often lower |
Wear and tear charges | The security deposit doesn't always cover wear and tear. The lessor may charge penalties for excessive damage. |
Excess mileage | Going over your mileage limit results in an excess mileage fee, usually a few cents per mile. |
Advantages and Disadvantages
Leasing often means lower monthly payments than buying, but it comes with mileage limits and end-of-term fees. If you drive a lot or want to keep the car long-term, buying is the better fit.
Advantages and Disadvantages
Advantages
Disadvantages
- Lower monthly costs: Instead of paying for the total cost of the vehicle, you’ll only pay for the right to use the car.
- Worry-free maintenance: You're likely responsible for routine maintenance only and may get warranty protection benefits.
- Potential perks: Sales taxes for leases are usually lower. If you use the vehicle for business, you may qualify for tax deductions. Some leases include free oil changes.
- Easy upgrade: At the end of the term, you can buy the vehicle or return it. You can also lease a better model.
- Additional fees: You may pay extra fees, including documentation, excessive mileage, wear and tear, disposition and security deposit fees.
- No ownership: You don't own the car despite making monthly payments, but you may have a buyout option at the end of the term.
- Lack of control: Car leases have mileage limits. You'll pay a fee if you go over the limit. You also can't modify or customize the vehicle because you don't own it.
When Does It Make Sense to Lease a Car?
Buying is the default for most car shoppers, but leasing makes more sense in certain situations.
You need a vehicle for short-term useA lease gives you access to a vehicle without the long-term commitment of ownership. It's the better option if you plan to use the car for a few years, whether for business or personal use.
You can’t cover high monthly paymentsBuying a car requires you to cover the vehicle’s full price. Even if you take out an auto loan, monthly payments can be high. If you live on a fixed monthly income and find it difficult to shoulder high expenses, consider leasing a car. Experian says leasing saves an average of $127 a month compared to taking out an auto loan.
You’re an older adultSeniors on a fixed income who plan to drive for only a few years are good candidates for a lease. Leasing also gives them access to the latest safety systems and technology, with lower maintenance demands.
You’re an expatriateLeasing works well for expats in the U.S. who want to drive without a long-term commitment. Keep the car as long as you need it and return it when the lease expires.
You like changing cars quicklyBuyers who switch cars every two to five years pay more over time from repeated purchases and trade-ins. Leasing removes those costs. After each term, you can move to a newer model.
How to Insure Your Leased Vehicles
Auto insurance provides financial protection if you're in an accident. Most states require a minimum level of coverage. Car insurance requirements can be less clear for lessees.
The right car insurance depends on your location, age, gender, credit score and driving history. Requirements also vary by state and leasing company.
Insurance Requirements for a Leased Car
Type of Insurance | What It Covers |
|---|---|
Bodily injury liability insurance | Pays for the medical expenses another party may incur if the policyholder is at fault in an accident |
Property damage liability insurance | Pays for damage you may cause to another party's property |
Uninsured and underinsured motorist insurance | Covers you if the at-fault driver has no insurance or not enough to cover your costs. Some states require it. |
Personal injury protection (PIP) | Covers medical bills for you and your passengers after a car accident. Some states require PIP. |
Collision coverage | Pays for any damage to your leased car from a collision with another vehicle or an object |
Comprehensive insurance | Pays for damage to your leased car caused by noncollision incidents, such as falling objects, natural disasters, vandalism and theft |
What You Need to Do When Your Lease Car Ends
At the end of your lease, you have four options:
Buy the car and finance its remaining value.
Return it to the dealer if you no longer need it.- Extend your lease for a limited time if you want to keep driving the car.
Re-lease the same car, which is often cheaper than leasing a new model.
Ending a lease early due to job loss, a drop in income or a move comes with consequences spelled out in your agreement. Your options include:
- Transfer the remaining contract to another party.
- Pay off the amount the lessor requires and sell the car.
- Trade the leased car for another at a dealership.
Early termination usually comes with a fee. Talk to your lessor before making any decisions.
Is Buying a Car a Good Idea for You?
The main benefit of buying is ownership. You gain full ownership once payments are complete. You can pay cash upfront or take out a loan. Either way, finding the right car at the right price is important. Beyond the purchase price, factor in fees, ongoing costs and whether buying fits your situation.
The True Cost of Buying a Car
Owning a car costs more than the purchase price. Insurance, registration, taxes and maintenance add to what you spend over time.
The average cost of car ownership is $9,282 a year or around $774 a month. Experian says those who finance through an auto loan pay an extra $667 a month.
Car buyers also pay these common fees:
Type of Fee | What It Pays For |
|---|---|
Title and registration fee | States charge a couple of hundred dollars for title and registration fees. In most cases, dealers work with state departments to process titles and registration for the cars they sell. Title and registration fees don't go to dealers but to the state. |
Sales tax | States charge a sales tax for vehicle purchases. The amount varies by state. Cities and counties may also charge sales taxes on top of the state tax. |
Destination fee | Covers the cost of transferring the vehicle from the factory to the dealer. The automaker sets the amount. |
Documentation fee | What a dealer charges for processing paperwork, such as the car title and registration. The cost often runs a few hundred dollars and varies by dealer and location. Some states impose a limit on how much dealers can charge. |
Inspection and emission fee | Many states require vehicles to pass safety and emission inspections before they can be sold. Some dealerships pass this cost on to you. Clarify this with your dealer to prevent unexpected expenses. |
Advantages and Disadvantages
Buying a car gives you full ownership but costs more upfront and over time.
Advantages and Disadvantages AdvantagesDisadvantages
- No restrictions and full ownership: Once you've paid off the car, you own it outright. You can customize or modify it without restrictions.
- No extra fees: You won't pay mileage penalties or wear-and-tear charges.
- No mileage limits: Drive as much as you want with no annual cap or overage fees.
- Depreciation: A car loses value the moment you drive it off the lot, so its trade-in or resale value will be lower than what you paid.
- Higher ownership costs: Beyond the purchase price, you'll pay for maintenance, repairs, fuel and auto insurance.
- Higher payments: Buying costs more than leasing because you're paying the full price of the car. If you take out a loan, you'll also pay interest.
When Does It Make Sense to Buy a Car?
A car purchase works best when you plan to keep it for several years or drive more than a lease allows. Run the numbers on your budget before you commit.
Buying makes more sense in these situations:
You plan on using it for a long timeLeasing offers short-term access to a vehicle. Buying is the better fit if you plan to keep the car for five or more years.
You have special needsYou need a car with safety features if you or a loved one is a person with a disability. If vehicle modifications are needed, you'll need to own the car, not lease it.
- You drive a lot
Buyers aren't capped on mileage. Lease agreements set annual limits, and going over adds fees.
You’re financially independentBuying makes sense if you can pay cash or comfortably afford higher monthly loan payments.
Financing Your Vehicle Using Auto Loans
Before choosing a car, decide how you'll pay for it. Some buyers pay the full price in cash. If that's not an option, an auto loan lets you spread the cost over time.
- 1Check your credit score
Lenders weigh your credit score heavily when reviewing loan applications. Your score determines how many loan offers you qualify for and at what rates. Review your credit history before you shop so you know where you stand.
- 2Shop around
Don't settle for the first lender you find. Lenders have different offers, requirements and terms, and some run promotional rates or discounts. Get quotes from at least three lenders to compare monthly payments.
- 3Learn the lending language
If you plan to take out an auto loan, these terms are worth knowing:
- Car loan: Also called car financing, this is the contract between the lender and borrower.
- Interest: The cost of borrowing, expressed as a rate and specified in your loan agreement. Rates vary by lender.
- Loan term: The length of the loan, usually expressed in months. You make monthly payments throughout the term to repay the principal plus interest.
- Principal: The loan balance. It starts at the total loan amount and decreases with each payment.
- Down payment: What you pay toward the car purchase upfront. Lenders use this to calculate your loan amount.
- Monthly payment: The set amount you pay each month throughout the loan term. Each payment covers a portion of the principal plus interest.
- 4Apply for an auto loan
When you're ready, apply with the lender that offers the best deal. You can submit multiple applications, but keep them within a short window, since multiple inquiries can affect your credit score.
- 5Examine the offer
If approved, the lender will send you the loan agreement. Read it carefully, including the fine print, before signing.
- 6Negotiate and finalize the deal
Clarify any terms with the lender and negotiate if needed. Once you're ready to sign, funds are usually released within a few days.
Tips on Finding the Best Auto Loan Deals
If this is your first auto loan, check your credit score and get quotes from at least three lenders before committing. Compare rates and read all terms carefully before you sign. What competing lenders offer gives you leverage to negotiate.
Compare rates and costsCompare loan offers from at least three lenders. Look at the annual percentage rate, monthly payment and loan term.
Research loan length and loan offersResearch lenders before submitting an application. Read customer reviews to gauge whether a lender offers reasonable rates and responsive service.
Limit your applicationsLenders run a hard credit inquiry when reviewing applications, which is recorded in your credit report. Lenders run a hard credit inquiry when reviewing applications. This credit check is recorded in your credit report and may affect your credit score. Some lenders offer pre-qualification tools you can use to check whether you qualify for a loan. They also show potential loan amounts, payments and rates.
Improve your creditImprove your credit score before applying. Borrowers with good to excellent credit are more likely to get approved and qualify for better rates and terms.
3 Factors to Consider When Choosing Between a Loan vs. a Lease
Whether you lease or buy comes down to how much you drive, how long you plan to keep the car and what monthly payment fits your budget.
- 1Consider your finances
Figure out how much you can spend on monthly payments before you shop. If you're on a fixed income or want the lowest monthly cost, a lease is the better fit.
- 2Calculate the costs
A lower upfront price doesn't tell the whole story. Add up maintenance, taxes, fees and monthly payments to get the true cost of each option.
- 3Evaluate your needs
Leasing costs less if you only need a car for a few years. If you drive a lot, buying makes more sense since lease agreements cap annual mileage, and going over costs extra.
Leasing Lingo
Car leases come with their own terminology.
Term | What It Is |
|---|---|
Acquisition fee | A fee charged to start a lease, usually in the $400–500 range. |
Capitalization cost | The final negotiated price of the vehicle to be leased. |
Closed-end lease | In this lease, you and the dealer estimate and agree on the residual value in advance. At the end of the lease, you won't have to pay extra (or will receive a refund) if the car turns out to be worth less or more than the agreed-upon price. |
Depreciation | The value that a vehicle loses over time. |
Disposition fee | A fee charged when you return your vehicle at the end of the lease, usually $350, that covers the dealership's cost to dispose of the vehicle. |
Early termination fee | A fee charged when you end the lease before the agreed-upon term is up. Consumer Reports says this fee can nearly match the cost of completing the contract. |
Mileage allowance | The maximum miles you can drive each year without paying an extra fee. Most leases set a 12,000-mile annual limit, but you can negotiate higher. |
Mileage fee | A fee you pay if you drive over the limit in your lease. This is often around $0.25 per mile. |
Money factor | Known as the lease factor, this is the financing fee you pay. It's expressed as a multiplier, not a percentage rate. To find the money factor, divide the interest rate by 2,400. For example, a 6.96% interest rate equals a money factor of 0.0029. |
Open-end lease | You take on the financial risk for the car's value when the lease expires. If it's worth less than expected at the end, you pay the difference; if it's worth more, the dealer pays you. |
Payoff amount | What you pay at the end of the lease to purchase the vehicle. |
Purchase option price | The full price to buy your leased car, as listed in the lease agreement. |
Residual value | The leasing company's estimate of what the car will be worth at the end of the lease. |
Security deposit | A deposit, usually equal to one month's payment, you pay before taking the car. You'll get this back if you return the car in relatively good shape. |
Term | The length of the lease agreement. Most leases run 24, 36, 48 or 60 months. |
Ask the experts:
What’s the most important factor(s) consumers should consider when deciding whether to lease a car or get a loan?
Auto Broker at HM Brown Automotive
There are three primary things to consider when considering financing or leasing a car:
- Monthly payment. If the payment is the same or higher on a lease purchase than on a finance purchase, it might be better to finance. If the payment is considerably less on a lease purchase, it might be better to lease. Usually, insurance and registration are about the same regardless of purchase method.
- Length of ownership. A particular time frame for the vehicle to be needed is an important consideration. If the consumer has a history of keeping cars for a long time and plans to keep the vehicle for a long time, then leasing would not be ideal.
- Type of use. If there is a particular use case for the vehicle (business or personal), that could also lead to one option being better than the other. The miles and use case could be a very important consideration.
Director of Marketing and Sales at Gunther Motor Company
The most important factors for car buyers to consider when deciding if it's better to buy or lease are how long you want to own the car, your budget, personal preferences and the miles you typically drive yearly.
Most new car leases are for three years, while financing contracts typically last five years or longer to lower the monthly payment. Looking down the road, drivers should consider whether they will need a different vehicle in three years or continue to drive their current vehicle. You can ask yourself questions: Do you expect your family to grow over the next three years? Is your commute likely to change? Do you want a sporty sedan for the next few years but know you'll want a family SUV soon? Are you happy with two rows of seats now, but know you'll need more room soon for multiple child safety seats, booster seats and friends?
When choosing between buying or leasing, your vehicle timeline is important. Essentially, how long do you want to drive your next car? If it’s three years, then leasing is the way to go. If it’s more than three years, we’d recommend financing.
Another factor to consider when choosing to lease or finance is your budget. You no longer have a car when you turn in your vehicle at the end of your lease contract. You've essentially rented a car for three years. Unless you purchase your vehicle for the predetermined price, you'll need to buy a car or start a new lease. Many drivers prefer this because leasing gives greater flexibility than buying.
When you finance a vehicle, you're making a purchase. At the end of your finance agreement, you have a car. But then, it is up to you to maintain that car and pay for repairs after warranties begin to expire.
Drivers should consider how much they drive when buying a car or leasing. Lease contracts have annual mileage limits to maintain the vehicle's resale value. If you exceed these limits, you must pay for every mile over the allotted amount when you turn in your car. We recommend financing over leasing if you rack up heavy mileage every year.
Lastly, what are your personal preferences? If you love having a new car smell at all times and enjoy the security of warranty protection, then leasing is an excellent option. Another benefit of leasing a new car every three years is you always have the latest infotainment technologies, safety features, and performance advancements.
If you prefer owning what you drive, plan to drive your next car for five to 10 years and enjoy owning your vehicle when you make your last payment, then financing is an excellent way to buy a car.
Have a question?
Ask a question, it’s free
Ask an expertResources for Buying a Car
These resources cover car buying, ownership costs and auto insurance.
Car Ownership
- Consumer Reports: Tips for negotiating a car's purchase price
- Edmunds TMV: True market value comparisons by year, make and model
- Federal Trade Commission: Consumer guides on buying a new car and buying a used car, plus the Buckle Up: Navigating Auto Sales and Financing report on auto financing
- Kelley Blue Book: Car values, vehicle listings and free dealer price quotes
- USA.gov: How to get a driver’s license, register a car and file complaints about a car, car rentals and auto loans
- Car buying and comparison sites: Price comparisons on TrueCar and CarMax
Auto Insurance
- Coalition Against Insurance Fraud: Auto scam and insurance fraud updates
- Insurance Information Institute: Coverage types and auto insurance industry data
- National Association of Insurance Commissioners: Auto insurance basics, coverage types, policyholder responsibilities and claims guidance
- National Insurance Crime Bureau: Auto insurance fraud and theft information, with tips for avoiding scams when buying a car
- State departments of insurance: Minimum coverage requirements by state. Some states list companies by coverage type, including Massachusetts and California.
About Christopher Boston
Christopher (Croix) Boston was the Head of Loans content at MoneyGeek, with over five years of experience researching higher education, mortgage and personal loans.
Boston has a bachelor's degree from the Seattle Pacific University. They pride themselves in using their skills and experience to create quality content that helps people save and spend efficiently.
Sources
- Experian. "Leasing Continues to Decline in Q2 2022 Amid Inventory Shortages." Accessed July 30, 2026.
- Experian. "The 10 Most Popular Vehicles to Lease in 2020." Accessed July 30, 2026.
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