If you are on the hunt for a new car, you might be trying to decide whether buying the car outright or leasing it is the smartest financial move. The choice you make can have a big impact on your long-term costs, but that’s not to say a single option is best in all situations.
Here, we are comparing car buying and leasing, discussing which one makes the most sense based on how you plan to use the car, your budget and your priorities.
How Buying a Car Works
When you buy a car outright or through finance, you own it once it is paid for. That means you get to keep it for as long as you want and can eventually sell it to recover some of the cost.
The great thing about owning a car is that you will have full control over things like mileage and modifications, as well as when to sell. But, of course, the value of the car will drop over time and any maintenance costs will fall on you after the initial warranty expires*.
*Most garages offer some form of used car warranty, which means they will repair or replace certain parts within a certain time frame.
How Leasing a Car Works
Car leasing is essentially a long-term rental agreement that usually lasts two to four years. When you lease a car, you make fixed monthly payments, which will usually include road tax and sometimes maintenance packages. You never actually own the car, so at the end of the lease, you will return it to the company you leased it from.
A key advantage of leasing a car is that you will make a lower initial payment compared to buying on finance. That means you have the chance to drive a brand new car for less than the monthly cost of buying the same model. But the caveat is that you will probably have mileage limits, and you will be charged by the finance company for any excess wear and tear.
Comparing the Costs
So, how do car leasing and financing differ from a cost perspective?
Generally, buying a car is the cheaper option in the long run if you decide to keep it for quite a few years after the financing on it is paid off. Just make sure to use a suitable form of financing, not something like a payday loan. Once you have cleared the finance, you will have no more monthly payments to commit to – only running costs and repairs to think about.
Leasing a car can cost more over time because you are always paying for a car you don't own, but you might find it easier to budget for it because the costs are more predictable.
With that in mind, leasing is likely going to be more appealing to you if you like having a new car every few years and want to avoid any unexpected repair bills. Buying will make more sense if you are happy to keep a car for longer and want an asset you can eventually sell.
Other Factors to Weigh Up
Aside from the financial side of things, it is also worth weighing up other factors when you are deciding between leasing and financing a car.
If you drive a lot, leasing may not suit you because your lease agreement will usually come with mileage restrictions, which you will be charged for if you exceed them. When you are buying, either with cash upfront or with car finance, you will have the freedom of unlimited mileage, which is better if you commute to work or just drive a lot.
Another advantage of leasing is that you won't have the hassle of selling a used car, while buying a car means you will need to manage that process yourself. Insurance costs are similar for both, though you might have to pay more for a new vehicle that you’ve leased due to its higher value.
Final Word: Making Your Decision
The smartest financial decision is to buy a vehicle outright, but that doesn't mean it's the best choice for you.
Think about how long you tend to keep cars and how much you drive, as well as how important it is to you to own the vehicle. If you want to save money in the long term, buying is a smart option for a more secure financial future. But if you are addicted to that new car smell and prefer not to own one car for years on end, leasing will probably have more appeal.
