Borrow Carefully

Get the inside track: How to lease or buy a new ride

Read: 4 minutes

When Brian Janosch started car shopping, he and his girlfriend were certain they would buy their own set of wheels. However, the pair quickly changed their minds when they discovered all the benefits of leasing a car.

“We were unsure of where we'd be in two to five years—and what kind of car we'd need then, so the thought of buying a car was intimidating," says the Palo Alto, CA resident.

Janosch isn't the only person who prefers leasing a car over buying it. A recent study found more than 30 percent of new cars financed in the second quarter of 2018 were on lease.

Make no mistake, there are benefits to both options. A lease is a long-term rental agreement. You make monthly payments, typically for two to five years, in order to drive a new car, and then either return or purchase it at the end of the lease term. But all those payments will add up over time. Buying a car, on the other hand, is often cheaper in the long run, but it usually has less flexibility and higher monthly payments.

So which choice is the best option for your lifestyle? Here are four questions to ask yourself before you decide.

1. "How long do I want to keep the car?"

Since leaseholders don't own the car, they have the ability to change what they're driving every few years. So the question remains, are you ready to commit to one car or do you have a wandering eye?

“It's a lifestyle decision," says Ron Montoya, a consumer advice editor for Edmunds. “You should think about whether you want to drive a new car every three years."

You may want to consider a lease if you like the idea of switching cars or anticipate your needs will change in the near future. Ready to settle down with a ride you love? Buying may be your best bet.

Remember, a car is considered a depreciating asset, so it loses value as soon as you drive it off the lot. Regardless of whether you buy a new or used car, it will likely be worth less if and when you decide to sell.

2. "What's my monthly cash flow?"

When it comes to car shopping, it's all about the Benjamins.

Monthly payments on a lease are usually lower than if you finance a new car—and for good reason.. When you lease a car, you're only paying for its estimated depreciation during the lease, taxes and fees, and a rental charge. If you're looking to crack down on your budget, consider getting a lease.

But if you plan to keep the car for at least five or six years and can handle the higher payments, you'll likely pay the loan off and own the car outright.

“Then you'll get to enjoy the benefit of no monthly payments," Montoya adds.

3. "How far and how often do I drive?"

Most leases put a cap on the number of miles you can drive per year without incurring additional costs. Mile limits typically range from 10,000 to 15,000 miles per year, which can add up. Buying a car might be the better option if you drive to work every day and embark on a big road trip each year.

The cost for each additional mile varies, but you can sometimes negotiate a lower mileage cost on your lease. Montoya adds that some automakers will forgo the extra mile fees if you commit to leasing another car.

4. "Am I driving for business?"

If you use your car for your own business, the IRS says you can sometimes take a tax deduction for a portion of your lease payment. But before you buy, check with a tax advisor to see if this applies to you.

If you're on the fence about whether to buy or lease a vehicle, there are many factors to consider, and ultimately the right choice will depend on your personal budget and driving needs. Visit Chase Auto to learn more about auto loan financing options.


Kelly Kearsley is a Chase News contributor.