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 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.

Which is Right for You?

There's no one-size-fits-all answer to the lease or buy question, says John Schleck, senior vice president at Bank of America. "It is completely dependent on a consumer's overall financial picture and goals." Schleck says that anyone facing this dilemma should take a close look at their finances and priorities. To get started, here are five questions to consider:

Should You Lease or Buy?
1 1 / 5

Do you have good credit?

Consider buying

Your credit score alone might answer the lease-or-buy question. "You will almost always need excellent credit to qualify for a lease," says CPA David Walters of the Palisades Hudson Financial Group in Oregon. In this case, buying might be your best bet. "Although buyers with bad credit have to shoulder higher interest rates," Walters says, "they can typically still get a loan unless their credit is truly awful.

Consider leasing

Your credit score alone might answer the lease-or-buy question. "You will almost always need excellent credit to qualify for a lease," says CPA David Walters of the Palisades Hudson Financial Group in Oregon.

Next Question
2 2 / 5

Do you chew up miles?

Consider leasing

A lease will limit the number of miles you can put on your car each year. If you surpass the limits outlined in your agreement, you'll have to pay a fee—typically about $0.20—for each extra mile, but if you don't drive often this won't be an issue.

Considering buying

A lease will limit the number of miles you can put on your car each year. If you surpass the limits outlined in your agreement, you'll have to pay a fee—typically about $0.20—for each extra mile. At that rate, going 1,000 miles over the limit would cost you an extra $200. If you need to drive a lot, a lease may end up being far more expensive than it first appears.

Next Question
3 3 / 5

Do you have your eye on the latest car models?

Consider buying

If having the latest car model and features aren't important, you shouldn't have any problem sticking with the same car for 10 or more years.

Considering leasing

If you're the type who always wants the newest and latest features, leasing might be the best choice, says Charles Cannon, sales director for new cars at BMW of West Houston. Instead of sticking with the same car and the same features for 10 or more years, you can enjoy a new car every few years.

Next Question
4 4 / 5

Do you have a tight monthly budget for your vehicle?

Consider buying

Typically, monthly payments for leasing are lower than monthly payments for a car loan.

Considering leasing

Monthly payments for leases are generally smaller than for car loans. With leases, you also won't have to put down a hefty down payment and won't have to deal with potential repair costs since the car will be under full warranty coverage. Maintenance costs are typically covered as well.

Next Question
5 5 / 5

Do you need a vehicle for your business?

Consider leasing or buying

In this case, either option could work for you.

Considering leasing

Whether a small or large business owner, vehicles are important to get the job done and, sometimes, to impress clients. With leasing, you'll be able to drive a new car every few years, which may be necessary if you're driving around or meeting with clients. The IRS also provides tax deductions for vehicles used for business purposes - both on leased and owned cars. Keep in mind, however, that if you're using your leased car for both work and personal reasons, you'll only get a tax break for the times you use your car for work so only a portion of those racked-up miles beyond your limit will be accounted for.


Lease vs. Loan: Calculate the Difference

While monthly payments aren't the only thing you should consider when trying to decide between leasing or buying a car, it's definitely an important factor to look at. To get an idea of how much your monthly payments would be for leasing versus a loan, as well as what your potential savings could be for one versus the other, use the comparison calculator below:

comparison calculator

Car price*
Length of lease (months)*
Down payment
Rebates and other incentives
Usage tax (sales tax)*
Car value at lease-end (residual value)*

This amount can found in your proposed leasing agreement, but you can also ask the dealership for this number if you haven't gotten to the paperwork yet.

Money factor*

'Money factor' is an auto leasing industry term for the interest rate expressed as a decimal. To convert the decimal amount to the interest rate percentage, multiply the amount by 2400 (e.g. 0.00333 X 2400 = 7.99%). This amount can be found in your proposed leasing agreement, but you can also ask the dealership for these details if you haven't gotten to the paperwork yet.

Security deposit*
Car price*
Interest rate*
Market value at end of loan*

If this amount isn't provided by the dealership, you can go to Kelley Blue Book to find an estimate on your own. Even if the dealership gives you this number, it's still a good idea to compare it to a trusted industry resource like Kelley Blue Book.

Down payment
Length of loan (months)*
* Required
You could save $283.44 each month if you leased
Monthly Payments for
Leasing vs. Buying
  • Monthly payment for auto loan
  • Monthly payment for leasing
Cost of leasing
Total payments $17,346.40
Security deposit $500.00
Down payment $-
Rebates and incentives $200.00
Total cost to lease $17,646.40
Avg. yearly cost $4,411.60
Cost of a car loan
Car price $28,000.00
Down payment $-
Principal $28,000.00
Interest $2,951.37
Total cost of buying $12,051.37
Avg. yearly cost $3,012.84

An important note about this calculator: The results provided by this calculator are for illustrative purposes only. The information provided is not a guarantee or indication of eligibility for an auto loan or lease. For individualized and specific details, consult a qualified financial professional or your local car dealership.

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.

Leasing a Car Buying a Car
Up-front costs Up-front costs alone tend to be lower. Up-front costs When buying, up-front costs will be higher, and you can expect to make a hefty down payment.
Monthly payments 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. Monthly payments Monthly payments are typically higher than lease payments.
Maintenance Leased vehicles are typically under a maintenance contract, and you only pay for routine maintenance such as oil changes and tire rotations. Maintenance As the owner, you're responsible for all maintenance. Some loan agreements include more comprehensive service agreements for an additional charge.
Wear and tear 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 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.
Use/mileage 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. Use/mileage You can drive as many miles as you want, but excessive mileage can lower the car's resale or trade-in value.
Customization Customizing or changing the appearance of the car can break the lease agreement and lead to additional fees. Customization Owners who purchase their cars are free to customize and change their vehicle as they see fit.
Ownership 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. Ownership You own the vehicle and make monthly loan payments to pay it off. After completing the payments, it's all yours.
End of term At the end of the lease term, you may return, purchase or trade-in the vehicle. End of term At the end of your car loan, you own the vehicle and can keep, sell or trade it in.

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

First payment

Lease payments are made at the start of the month and the first payment is traditionally required at signing.

Security deposit

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.

Acquisition fee

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.

Documentation fee

Documentation fees, typically between $150 and $300, are charged for processing title and vehicle registration paperwork. They can be rolled into the down payment or into the monthly payments.

Sales tax

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.

Title and registration

The fees charged by the state to provide title and registration of your vehicle. Typically cost between $200 and $400.

Disposition fee

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.

Down payment

Spending more on your down payment will lower the amount you have to borrow and lower your monthly payments. Most experts recommend putting down at least 20 percent, but a recent Edmunds analysis showed consumers put down an average of 10.4 percent when buying a car in 2015.

Documentation fee

Documentation fees, typically between $150 and $300, are charged for processing title and vehicle registration paperwork. They can be rolled into the down payment or into the monthly payments.

Sales tax

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.

Title and registration

The fees charged by the state to provide title and registration of your vehicle. Typically cost between $200 and $400.

How to Choose: Weighing the Pros and Cons

When deciding between leasing or buying, you should think about more than just the size of your monthly payments. According to Consumer Reports, long-term leasing "invariably costs more than an equivalent loan." Here is a list of the pros and cons of leasing and buying:

Advantages of Leasing
Lower monthly payments
When leasing, you only pay back the vehicle's deprecation, not the vehicle's full cost. "You're paying to use it, not for the car itself," says Schleck. The result? Lower monthly payments.
Maintenance coverage
Car trouble can be costly and stressful, but leasing can ease a lot of those worries. "The car's factory warranty and service package covers repairs for most or all of the lease period," Walters says.
Predictable value
Wouldn't it be great to know how much your car will be worth three years after purchasing it? In leases, you do get a crystal ball, says Cannon. It's called isolated depreciation. "The owner knows up front how much their car will be worth in three years," he says. "They can decide if they want to keep it or turn it in for a new one."
Disadvantages of Leasing
Mileage limits
Long commutes, family vacations, cross-country trips or just a very busy on-the-go lifestyle can be expensive if you lease. If you go over the mileage limit, charges can add up quickly.
Lack of equity
As Schleck explains, you don't build up any equity in a car when you lease. That means you won't be able to get any of your money back by selling or trading in your vehicle.
Higher long-term costs
Most car buyers can drive their cars for several years after the last car payment. But if you continually lease, the payments never stop. Walters says that leasing several cars over the years is almost always more expensive than buying a car. "If you had bought, you'd be closer to the end of your car payments, instead of starting over," he says,
Damage costs
You're responsible for any damage outside of normal wear and tear at the end of your lease. If you can't buff out the scuffs from your bike rack or clean the juice stain from upholstery, be prepared to pay extra fees.
Advantages of Buying
More control
Unlike lease holders, car owners aren't stuck with their vehicle. "You're free to sell or trade in your car at any time, or keep it as long as you like," says Walters.
Financial equity
Long-term ownership has its perks. "The longer you own your car," Walters says, "the more you'll save buying versus leasing."
Bad credit is welcome
You'll need a good to excellent credit score to qualify for a lease, but, as Walters explains, just about anyone can get a car loan. However, there's a catch: If your credit score is less than stellar, you can expect to pay high interest rates on the loan.
Disadvantages of Buying
Higher monthly payments
The monthly payments for a loan are almost always higher than a lease. With a loan, you'll be paying for the entire cost of the vehicle. With a lease, you're just covering the depreciating value of the car.
Depreciating value
"A car starts to depreciate the moment you drive it off the lot," warns Walters. That declining market value could hurt when it comes time to trade in or sell the vehicle.

What to Do at the End of Your Lease

This is perhaps the biggest question most people have - what happens at the end of a lease?

You can choose to:
  • Purchase the car

    You can purchase the vehicle outright or take out a loan to finance the purchase of the vehicle for its remaining value.

  • Return the car

    Simply give the car back. After an inspection, you'll be charged for any excess wear and tear, excess miles and a disposition fee.

  • Extend the lease

    If you want to hold onto the car but don't want to buy it, you can extend the lease for a limited period of time.

  • Re-lease

    You can re-lease your current vehicle with a used car-lease, which is typically less expensive than a new car lease.

Tips for Immigrants and Expats

If you're a non-resident who wants to buy or lease a car in the U.S., you'll have to overcome a series of obstacles. Here are some tips:

Get the right driver's license

If you're a short-term visitor to the U.S., you'll need a driver's license from your home country. In some states, you'll also need an international driver's permit from your home country. If you're going to be here for a longer visit—long enough to consider buying or leasing a car—check with the DMV for the eligibility requirements in your state. If you're eligible for a U.S. driver's license, you must have one to drive legally and will need to get a license before you purchase or lease a car.

Build credit history

Before getting approval to finance or buy a car, you need to establish a credit record in the U.S. Credit histories do not transfer from foreign countries. To build a credit history, get a Social Security number, an address in the United States and try to get a secured credit card or line of credit from a bank.

Get car insurance

Car insurance companies look to your credit and driving history before selling an insurance policy. If you're a non-resident without either, securing car insurance can be difficult. Companies such as International Autosource can help you get your vehicle insured in the states.



An online service for foreign expats in the United States that provides car leasing and auto insurance services.

International Autosource

The consumer division of Overseas Military Sales Corporation, International Autosource provides personal transportation assistance to expats throughout the world.

Mazda Foreign Residents Program

Through local dealerships, Mazda offers foreign residents a special financing program to purchase or lease a Mazda vehicle.

National Conference of State Legislatures

The NCSL provides a state map with information about the regulations regarding state-issued driver's licenses to immigrants.


A division of the U.S. General Services Administration's technology transformation service, USA.gov offers tips and advice for buying and leasing vehicles.

Considerations for Seniors

As a rule, older drivers are more likely to buy a car than sign up for a lease. "They may feel uncomfortable with the idea of leasing," Cannon says. But if you're an older driver, a lease might be worth a second look. Here some factors to consider before getting your next car.

How long do you plan to drive your vehicle?

If you intend to keep your car for more than a few years, buying will likely be a better investment. If you don't think you'll be driving on your own much longer, a lease might make more sense.

Are you concerned about monthly payments?

If you live on fixed income and need a predictable, affordable car payment, leasing might be a good option.

Are you looking for safe, reliable transportation?

By leasing, seniors and retirees can take advantage of the latest features in safety technology, such as braking assist systems. Leased cars also tend to need less maintenance and repair.

Are you comfortable with technology?

Having the latest features can be a good thing - as long as you're comfortable with new technology. If you don't like the idea of extra gadgets, purchasing an older vehicle might make more sense than leasing something new and uncomfortable.

Business Use and Tax Benefits

If you use your car for business purposes, you're entitled to tax benefits no matter whether you lease or buy. According to the IRS, if the vehicle is solely used for business, you can deduct the entire cost of operation (up to IRS limits). But if the vehicle is used for business and personal reasons, you can only deduct business use expenses.

There are two methods to calculate deductible expenses:

Standard Mileage Rate

The 2015 standard mileage rate is 57.5 cents per mile.

Actual Car Expenses

You may itemize your car expenses, which include the following:

  • Registration fees
  • Lease payments
  • Depreciation
  • Repairs
  • Gas and oil
  • Garage rent
  • Parking fees
  • Tolls
  • Tires

Before claiming any deductions, be sure to review IRS guidelines and speak to a tax professional. There are special regulations regarding leasing and for individuals that are self-employed.

Leasing Lingo

aAcquisition Fee

A fee charged to the lessee to start a lease, which generally begin in the $400 to $500 range.

cCapitalization Cost

The final negotiated price of the vehicle to be leased.

Closed-End Lease

In this lease, the residual value (value of the vehicle at the end of the lease) is estimated and agreed upon in advance by you and the dealer. 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.


The value that a vehicle loses over time.

Disposition Fee

A fee charged when you return your vehicle at the end of the lease, typically $350, that covers the dealership's cost to dispose of the vehicle.

eEarly Termination Fee

A fee charged when you end the lease before the agreed upon term is up. According to Consumer Reports, this fee can be almost as expensive as finishing out the contract.

mMileage Allowance

A maximum limit you may drive the car each year without having to pay an extra fee. A 12,000 mileage allowance per year is typical on most leases, but this can be negotiated.

Mileage Fee

A fee that you have to pay if your drive over the limit specified on a lease. This is often around $0.25 per mile.

Money Factor

Known as the lease factor, it is the financing fee you are charged. It is expressed not as a percentage rate, but a multiplier. To determine the money factor, divide the interest rate by 2,400. For example, a 6.96 percent interest rate is equivalent to a money factor of 0.0029.

oOpen-End Lease

In this lease agreement, you agree to take financial risk for the value of the vehicle when the lease expires. If the vehicle is worth less than expected, then you have to pay the difference at the end of the lease. If it is worth more, the dealer pays you the difference.

pPayoff Amount

The amount of money you have pay at the end of the lease if you decide to purchase the vehicle.

Purchase Option Price

The total price that you would have to pay to purchase a leased car. This price is stated in the lease agreement.

rResidual Value

The leasing company's estimate of what the car will be worth at the end of the lease.

sSecurity Deposit

A deposit, typically equaling one month's payment, you pay before taking over a leased vehicle. You'll get this money back if you return the car in relatively good shape.


The length of the lease agreement. Most leases are for either 24, 36, 48 or 60 months.