Should you Buy or Lease Your Next Vehicle?

Jun 10 2026

Written by Dawn Allcot is a personal finance writer with more than two decades experience

Should you Buy or Lease Your Next Vehicle?

Making the decision to buy or lease a new car isn't a straightforward decision. Throw in the emotion that goes with this major financial decision and it's not easy to decide which option is best for you.

Most people don’t have ready cash available to buy a new car without financing the purchase. So, leasing a car looks enticing, offering lower monthly payments and the ability to get a new car every two or three years with little or no money down.

But leasing a car also has several disadvantages, including mileage limits (or over-mileage charges), potential wear-and-tear charges, and a lack of ability to customize the car. Plus, you’ll always be making car payments with nothing to show for it in the end.

The decision of whether to buy or lease a car isn’t always easy. Here are some considerations, including a breakdown of the total costs.

Expenses of Leasing vs. Buying a New Car

Let’s say you have your heart set on a new car. You don't want the potential headache of a used car and you want the latest safety features, maximum fuel efficiency, and the Manufacturer's Warranty that comes with a new car purchase. This peace-of-mind is worth a lot, whether you lease or buy. And knowing how much you’ll pay in total to lease vs buy can help you make an informed decision on which way to go.

Purchase Price

Whether you buy or lease, the purchase price is based on the car’s MSRP, or manufacturer’s suggested retail price. You can and should negotiate your final purchase price with the dealer whether you decide to buy or lease.

When you negotiate on a lease, you’re dealing with the variables that determine your monthly payment and the upfront costs. The most important factor is the "Capitalized Cost" of the vehicle for the term of your lease. For a lease, the downpayment amount is also a major factor that will determine your monthly lease payment. It's important to have an acceptable limit for your monthly payment before you start the negotiating process.

If you're ready to buy the car, make sure you negotiate the purchase price before you start to negotiate on other factors like a trade in and dealer fees. The dealer wins when you let them "mix and match" on cost elements as they're professionals at raising one to lower another and end up ahead in the deal.

The purchase price should always be negotiated before you bring up an interest in leasing, trading in another vehicle and other fees.

Down Payment

You may be able to buy a car with no money down if you have excellent credit and/or a trade-in with value that can count as your down payment.

For a lease, it may be possible to get a car with no money down, though you should expect your monthly payments to be higher in this scenario. You could also put a trade-in value toward the reduction of our overall cost of a lease. And if the lowest out of pocket payment amount is your goal, the lease is likely a better way to go.

Taxes

When you buy a car, you’ll pay taxes on the total purchase price. In some states, like New York, the Sales Tax can add almost 8% to the purchase price of a new vehicle.

When you lease in most states, you only pay taxes on your monthly payments, not the full value of the vehicle. You may be allowed to add those tax payments to your monthly payments, reducing your upfront costs.

Some states, notably New York, Texas, Minnesota, Ohio, and Georgia, require that you pay taxes on the leased amount of the vehicle, or the total of your lease payments, upfront at signing.

Title, Registration and Other Fees

You’ve probably seen the fine print at the bottom of car ads or heard the rapid speech at the end of a commercial. Most “zero down” new car offers, whether they are a loan or lease, still charge title, registration and documentation fees.

But with a lease, you’ll also have to pay an acquisition fee, which can add $600 or more to the total cost of your lease. This $600 is likely lower than the overall fees for the purchase of the same vehicle.

Security Deposit

When leasing, you likely will have to pay a security deposit before taking possession of the vehicle. If you keep the vehicle in good condition and don’t exceed the mileage limits, you should receive that money back when you turn in the lease. If you don't treat the car well or go over your allocated miles, the security deposit will be used to pay down the necessary repair and/or mileage overage charges.

Insurance

Insuring a leased car usually costs more than insuring the same car that you finance or won. The lessor mandates higher insurance liability limits, comprehensive and collision coverage and GAP (Guaranteed Asset Protection) coverage. If you were to finance the same car you'd need the same coverage for the term of the loan, but can drop it later once you fully own the vehicle.

Interest / Lease Factor

The interest paid on a new vehicle loan or lease has a big impact on the monthly payment amount.

The average APR for new car loans is 6.9% in May 2026, according to Edmunds.com.

You also pay interest on a lease, but it’s called the lease rate, lease factor, or money factor. The average lease factor is 0.0025. To convert this to an APR, multiply the lease factor by 2,400. Today, this cost is slightly lower (6%) for a lease vs. a loan. But you’re only paying that interest for the time you’re leasing the vehicle, which can make your monthly payments and overall costs much lower.

Example:

Let’s say you’re deciding whether to lease or buy the popular Toyota Camry XLE, with an MSRP of $34,500. For the sake of simplicity, we’ll assume you didn’t negotiate and didn’t have a trade-in vehicle.

For a three-year lease, you’d pay $19,819, which would work out to $521 per month before taxes and fees.

To purchase the same vehicle with a five-year car loan at the average APR of 6.9%, you would pay $40,920, which works out to $682 per month. Now, at the end of this 5 years, that Camry is likely to still be worth an estimated $20,000, making the overall out of pocket cost of leasing vs buying to be very close.

If lower monthly payments for the same vehicle are important, the lease option is great for you. If you can pay over time and want the residual value of the asset, purchasing the vehicle may be right for you.

Other Advantages to Leasing a Car

The out-of-pocket savings, as well as the opportunity to get a new car every two or three years, are the biggest benefits to leasing a vehicle.

If you choose to buy out the lease, you can buy the car at 60% of its total value, since it’s already depreciated substantially.

When you lease a car, routine maintenance and emergency repairs are typically covered by the dealer. Most cars don’t need new tires or brakes during the lease term, so you don’t have to worry about those added costs.

Disadvantages to Leasing a Car

Leasing a car isn’t for everyone. Make sure you know the drawbacks before you sign a lease agreement.

Mileage limits

When you lease a car, you’re locked into mileage limits of 10,000 to 12,000 per year. There are also ultra-low-mileage leases that cost less if you only drive an average of 8,000 miles per year or less.

But if you go over the mileage limit, you could get saddled with over-mileage fees of 10 cents to 25 cents per mile, which add up.

Wear and Tear Damages

If your car gets dents or scratches, or the upholstery gets worn beyond what the dealership considers reasonable, you could be liable for wear-and-tear damages.

Common damages include:

Excessive or uneven tire wear
Mismatched tires
Bumper damage
Glass chips or cracks
Dents larger than the size of a quarter
Scratches longer than a credit card
Wheels or hubcaps with scratches from hitting curbs

Keep in mind, dealers may waive excess wear-and-tear fees if they can get you into a new lease. It’s worth negotiating as you turn in your lease and shop for your next vehicle.

No Customization

When you lease a car, you must turn it in looking exactly as it did when you leased it; you can’t make upgrades or modifications that can’t be undone or removed easily.

Early Termination Fees

If your circumstances change and you want to turn in your lease for a different car, you might have to pay lease termination fees. However, if your car is a model that’s in great demand with high residual value, the dealer may waive those fees to get you into a new lease.

Advantages to Buying a Car

In spite of the higher monthly payments and upfront costs, buying a car has advantages for some people.

Customize It

You can do whatever you want to a car you own, even while you’re still making loan payments. You can add upgrades or modifications.

No Car Payments and Cheaper Insurance Once the Loan Is Paid Off

For people who drive their car for 50,000 miles or more before trading them in for something newer, buying a new car means you’ll eventually have no car payment and potentially lower insurance costs.

If you sell or trade in the vehicle once the loan is paid, you’ll receive whatever value your car still has.

Disadvantages to Buying a Car

Buying a car with a loan also has some disadvantages to note.

More expensive

Almost always, leasing will cost less than taking out a loan to buy the same car. You’ll probably pay higher interest rates, even if you have excellent credit. A loan may also have higher upfront costs, including a larger down payment.

You May End Up Underwater on the Loan

New cars lose 10% of their value or more the second they leave the dealership. Depending on your interest rate and further depreciation, you could wind up owing more on the loan than the car is worth.

If you change your mind and want to trade in the vehicle for something else, you may have to cover the difference between the car’s value and loan balance.

Potential for High Repair Costs

As your new car gets older, the odds increase that it will need not just routine maintenance, but emergency repairs. At some point with an older car, you’ll need to decide if it’s worth putting money into repairs or buying a newer vehicle.

Buy or Lease: The Bottom Line

Lease a Car If You:

Want lower monthly payments
Like driving a new car every three years
Are very careful with your cars
Don’t drive more than 12,000 miles per year

Buy a Car If You

Plan to keep it after the loan is paid off
Want to customize it
Don’t want to worry about mileage or excess wear and tear

Conclusion

Buying or leasing is a personal decision based on your financial situation, driving habits, and whether having a new car every few years is important to you. Understanding the costs, benefits and drawbacks can help you make the right choice.