When is It Better to Lease vs. Buying a Car?

For most people, buying a new car involves taking out some form of finance to cover the cost. Traditionally, that meant arranging a car loan, either through the dealership or your bank. However, there’s another option that’s fast gaining in popularity.

Leasing lets you drive a new car, but instead of taking a loan to cover the full purchase price, you pay a monthly fee over a fixed period, after which you can return the car and walk away with no questions asked.

Both car loans and leasing have their benefits, but which one is right for you?

When to Lease a Car vs Buying

Most leasing deals offer lower monthly payments for a car compared to a loan on the same model. The payments are also over a shorter time frame, usually two or three years compared to a typical loan over five or seven years.

Once the contract period is over, you can choose to return the car in good condition and walk away, or buy out the remaining value and own the car outright. However, you can also switch to a new model and restart the payment period.

This means you can change to a brand-new car every two or three years, while still paying less than a typical loan. So if this flexibility is important to you, leasing has a strong advantage.

When to Buy vs Lease

However, the major downside of leasing is that your repayments aren’t going towards building an asset you’ll eventually own. At the end of the lease contract, you’ll have nothing to show for your repayments, and you won’t own a car you can trade-in against a new model.

If you prefer your payments to go towards you eventually owning your car, buying is the better option.

Buying a car has one other major benefit. First, when you own the car you can drive it as much as you need to. In contrast, most leasing deals set an upper limit on the number of kilometres you can drive each year, and the over-limit charges can mount up. If you need to drive more than the average person, buying can often work out more economical.

So which should you choose, buying or leasing? If driving a newer car for less sounds good to you, leasing is the way to go. But if you want to build up an asset you’ll own, buying is the more effective option.