Leasing vs. Buying a Car – Pros and Cons

In the market for a vehicle? One of the first questions you’ll need to ask yourself is whether it makes sense to buy or lease. Recent tariffs may affect car prices, so some prospective car buyers might consider leasing as an alternative to owning their vehicles. If you’re in need of a vehicle and aren’t sure whether to buy or lease, consider the pros and cons of both options.

The Cons of Leasing a Car

When you lease a vehicle, you’re agreeing to terms of use set by a dealer. It can restrict how you use the vehicle and what you’re responsible for. Here are the potential drawbacks:

• No ownership: Leasing is essentially renting. At the end of the lease, you don’t own anything. You’ll have to find another car, without a vehicle to sell or trade in.
• Mileage restrictions and fees: Leased cars come with mileage limits, which can be problematic if you frequently travel long distances. Dealers also charge fees for excessive wear and tear on leased vehicles.
• Early termination penalties: Terminating a lease early can lead to substantial penalties, which might be a concern if your deployment or assignment plans change unexpectedly.

The Pros of Leasing a Car

Leasing is an attractive option for cost-conscious customers who might not have a particular attachment to owning a vehicle. Here’s why:

• Lower monthly payments: Experian has found that, on average, lease payments are lower than loan payments, allowing you to drive a newer car for less money upfront.
• No resale worries: You don’t have to worry about vehicle depreciation when you lease, since you simply return the car at the end of the term.
• Vehicle upgrades: When you lease, you can drive a new car every few years. You’ll have access to all the latest technological updates and safety features.

The Cons of Buying a Car

While it’s always nice to own an asset, owning a vehicle can come with some drawbacks. Keep the following in mind if you choose to buy:

• Higher monthly payments: Monthly loan payments for a purchased car are typically higher than lease payments. Use our Lease vs. Buy Calculator to get an idea of the cost difference for your ideal car.
• Maintenance costs: As the owner, you'll be responsible for potentially increasing maintenance and repair costs as the car ages. This can become an additional burden if you've got a hectic schedule and limited time and budget for car care.
• Depreciation: New cars often depreciate quickly—even as you drive them off the lot. Used cars depreciate at a slower rate, so remember that as you’re car shopping.

The Pros of Buying a Car

Whether you choose to buy new or used, purchasing a vehicle comes with some great benefits. Consider the following:

• Ownership: When you buy a car, you become the rightful owner once you’ve completed the payment terms. A vehicle is an asset, and one you may have equity in when you assume the title.
• No mileage limits: Unlike leasing, there are no mileage restrictions! You won’t have to worry about how many miles you’re driving your car in a particular year.
• Resale value: Choosing a car with strong resale value can help you recover a larger portion of your original investment if you choose to trade it in or sell it.

Leasing vs. Buying Questions to Ask Yourself

• Should I lease a car if I'm planning to drive it a lot?
  You could, but car lease terms typically include mileage restrictions as many leasing companies specify the maximum number of miles you can drive the car in a year. Fees could apply if you exceed that number.
• What role does maintenance play in leasing a car?
  It's well-known that performing regularly scheduled maintenance helps you keep your car in good running condition. Whether you've leased or bought your ride, you could buy a maintenance package upfront for a set number of services during the lease, or pay out-of-pocket. Keeping up on the regular maintenance could help you avoid unexpected repairs and additional charges that can occur at the end of the lease.
• What monthly payment can I afford?
  If you lease your car, the monthly payment could be less each month than if you had bought the car outright. You would also have the budget flexibility to use the money you’ve saved each month on other things.
  
• Could I eventually own my car after the lease expires?
  Sure! If you like the car enough that you want to keep it after the lease ends, you’ll have to pay the balance remaining of the current value. Chances are you’ll end up paying more for it in the end, due to the leasing fees, than if you had bought it in the first place. But the price may still be competitive relative to the current market price of a similar vehicle.
  
• Can I make a trade-in when leasing a new car?
  Trading in your current car for a lease works just like you were trading in to buy a new car. After negotiating a trade-in value with the car dealer, that amount could be used toward your intitial deposit or to lower your future lease payments when applied to your down payment.
  
• Do I want to drive the newest model?
  If you enjoy driving a new car and only committing to it for just a few years, then leasing may be for you. But remember—you’re essentially renting that car and will need to find a new ride once that lease is up.

Special Considerations for Servicemembers

As a current or soon-to-be Servicemember, your lifestyle and financial situation differ from civilians. It’s important to factor in these unique circumstances when deciding between buying and leasing a car:

• Deployment and relocation: Servicemembers frequently face deployments and relocations. Leasing might be more suitable if you anticipate being deployed for extended periods. Just make sure your lease contract allows for early termination due to deployment without significant penalties.
• Stability: If your assignment locations are stable and you’re planning to establish a home base, buying a car could be a sensible choice. It can provide you with a steady mode of transportation that you can rely on for the long term.
• Maintenance: Servicemembers have busy schedules, and maintaining a car might not always be feasible. Whether buying or leasing, dealerships often offer maintenance packages, which cover all or most necessary maintenance during the term of the package.
• Financial flexibility: Leasing generally requires lower monthly payments than buying, which could be beneficial if you’re managing other financial responsibilities alongside your service commitment.
• Credit score: Leasing might be more accessible for individuals with lower credit scores compared to getting a car loan. If you’re still building your credit, leasing could be a way to secure a newer vehicle.

Buy or Lease With Confidence

If you’re mulling over your options for buying or leasing a car, you’re not alone. Both buying and leasing have their benefits and drawbacks, so it’s important to consider your specific needs and circumstances before making a final decision. Whatever you choose, rely on Navy Federal Credit Union’s Car Buying Center to help you research, finance, buy, protect and enjoy your next car.