It's a common dilemma: lease versus buy — lease or buy a car — which is better?. Everyone who has ever considered leasing has had this question cross their mind. So what is the answer?

Lease versus buy?
The answer: It depends

Leases and loans are simply two different methods of automobile financing. One finances the use of a vehicle; the other finances the purchase of a vehicle. Each has its own benefits and drawbacks.
It's not possible to simply say that one is always better than the other because the answer depends on each specific situation.
When making a 'lease or buy' decision you must look not only at financial comparisons but also at your own personal priorities — what's important to you.
Is having a new vehicle every two or three years with no major repair risks more important than long-term cost? Or are long term cost savings more important than lower monthly payments? Is having some ownership in your vehicle more important than low up-front costs and no down payment? Is it important to you to pay off your vehicle and be debt-free for a while, even if it means higher monthly payments for the first few years?
So, making the lease or buy decision is not quite cut and dry. There are things you need to consider first. Let's take a look at some of these things. First, is to understand that buying and leasing are fundamentally different, not just two versions of the same thing.

Buying and leasing are different

When you buy, you pay for the entire cost of a vehicle, regardless of how many miles you drive it. You typically make a down payment, pay sales taxes in cash or roll them into your loan, and pay an interest rate determined by your loan company, based on your credit history. You make your first payment a month after you sign your contract.
When you lease, you pay for only a portion of a vehicle's cost, which is the part that you "use up" during the time you're driving it. You have the option of not making a down payment, you pay sales tax only on your monthly payments (in most states), and you pay a financial rate, called money factor, that is similar to the interest rate on a loan. With leasing, you may also be required to pay special lease-related fees and possibly a security deposit that you don't pay when you buy. You make your first payment at the time you sign your contract — for the month ahead.


Lease payments are made up of two parts: a depreciation charge and a finance charge. The depreciation part of each monthly payment compensates the leasing company for the portion of the vehicle's value that is lost during your lease. The finance part is interest on the money the lease company has tied up in the car while you're driving it. In effect, you are borrowing the money that the lease company used to buy the car from the dealer. You repay part of that money in monthly payments, and repay the remainder when you either buy or return the vehicle at lease-end.