Should You Finance or Lease a Car? a Decision Guide

A lease ultimately serves one group of people.

People who like having a new car regularly and are in a financial position where making a poor financial decision in exchange for a luxury good is not going to fundamentally change their lives.

A used car, or purchase of a new car that you pay off and keep for it's service life will essentially always make more financial sense.

the problem with leasing is that you never own the car. you are just paying the depreciation. This is ok if you want to have a new car every 3 years (and can easily afford it), because you aren't putting a bunch of money into a depreciating asset with a large down payment. You can use that extra money that you saved to make you money (ie rather than purchase a new accord in cash or put a large downpayment, you can lease it and put the remaining 30k or whatever into a rental property, business, or stocks). A business owner can also use the lease as a tax write off, deducting from his overall tax burden.

Here is the issue: if you lease 2 accords back to back for a total of 6 years.. then you've spent the msrp of the car and have nothing to show for it. If you financed that original accord 6 years ago, it would still be worth something today AND you'd have a working car.

I've found myself potentially in the market for a new car and this question just popped in my head as I've been shopping, and looking at the interest rates offered on some of the lease terms and I feel like there's got to be a catch somewhere.

For context I've always bought my cars used and because I know this subreddit.... yes, I am the person who drove a 2001 Toyota Camry till the doors fell off, and am now a rounding error away on 200,000 km on a 2018 Honda Accord that I bought used 7 years ago. I put all but 30,000 km on that odometer to boot.

Unfortunately the Accord is starting to show some electrical gremlins that are getting progressively more expensive to fix (in the ball park of $4,000 in the past 9 months alone) and so I find myself debating whether to get out now (while it's still worth something) or gamble that this is the end of the potential problems and drive it into the ground. And while a great car and fun to drive, it doesn't really fit the lifestyle I live outside of work with my friends; I mean it works but I highly recommend avoiding off roading a family sedan lol. For additional context I have no debt, healthy savings, own a home (that costs me less than 25% of my take home a month) and have come into a job over the past year that I have long term security at, that for the first time in my life allows me to consider buying "new" and if i really wanted to, a luxury brand.

Now that I've gotten all the inevitable questions out of the way, here's where my question comes in. When does it make financial sense to lease? I don't want to liquidate my investments right now so would do a trade (or try to private sell) plus some cash and finance the difference if I did sell the Accord. I'm seeing lease terms of 1-2% vs finance terms of 3.5-5% on the two vehicles I've narrowed it down too. If I did lease the vehicle I factory ordered, how does a buyout at the end look like? Is it legitimately just pay out/finance the remainder after depreciation? And if so would I be crazy not to lease and then buy out 2-3 years down the road if I did sell the Accord? Cause it seems like a great way for the dealer/manufacturer to eat the depreciation for me on a luxury brand and walk away better off in the end.

I realize some of this is a dealership question but lets be honest dealers suck and I want a variety of opinions first before broaching that topic. Thanks in advance!

It all varies person to person and deal to deal.

I used to finance but it seems I go through cars every 2-3yr, so I tried leasing with my Q5e. I got $27K off in dealership discounts ($12.5K) and incentives/offers ($14.5K).

Happy as a clam with my deal. I don’t think I ever want to finance again, at least for a new car (I’d get a 3yo lease return CPO).

I prefer to keep my cash on hand with little to no money down + a fixed payment that includes maintenance + always be under factory warranty (and get dealer loaners).

The R2 is launching into high demand, so I wouldn’t expect deep lease discounts or particularly attractive lease rates early on. Leasing still serves a specific purpose, though: it shifts the residual-value risk to the leasing company. With an EV, that can be valuable protection against faster-than-expected depreciation and rapid advances in technology, you can simply walk away after a few years. If you plan to keep the R2 for 5–6+ years, buying makes more sense because you can spread the depreciation over a longer ownership period and eventually have a paid-off vehicle. If you already know you’ll want to upgrade in 3–4 years, leasing can be worth considering because buying means you’re exposed to the R2’s early depreciation when you go to sell it. Ultimately, though, I’d compare the actual lease terms against the expected resale value rather than assuming leasing is automatically the better option for a short-term owner. 

Financial question for all you EV veterans out there. We're ready to swap one of our ICE vehicles for our very first EV. So much to learn! We are seriously considering the R2 after two fun demo drives (if we can get over the reliability fears and insurance costs). I've noticed a lot of folks talk about leasing EVs, and I'm genuinely curious why leasing appears to be so common in this space.

My parents taught me that leasing is throwing your money away and forever chasing the next lease. Obviously this (possibly old school) advice is based on fairly predictable depreciation curves of legacy brand gas cars. I've always financed or paid cash for my cars and kept them as long as possible.

With the federal EV tax credit out of the picture, are there other strategies that make leasing a better move than financing or paying cash? Or is it purely a luxury for those that can afford it to lease vs. buy to avoid owning an out of warranty car with risky reliability and steep depreciation?

EDIT: Thanks for the great perspectives everyone! Very helpful insights.

A lease is really two things: 1. Renting a car 2. An option to buy that car at the end of the lease.

Generally this will always be more expensive than just buying it up front, but there is one situation where it can be a good financial decision. 

As a hedge against unexpectedly high depreciation.

You are making a bet against the dealer. They bet that over the lease term, let’s say three years, the car will depreciate 40%. They charge you 45% of cars value over 3 years, and then at the end of the term you can buy it for the residual (60%).

If the dealer was right and the depreciation was around 40%, they win the bet, you pay 105% for the car.

If the depreciation was slower than expected they win and you also pay 105%. This is because even if you overpay for the depreciation you can then buy the car at a discount (say a 15% depreciation car for 40% off) at the end of the contract.

But If the car depreciated faster than expected then you simply don’t buy it and you won, you paid 45% and it depreciated 55%, you made 10%.

Generally the dealer wins, but it can be a good hedge. On average you pay more but your exposure is much less. There’s literally no risk of you being stuck with a car that depreciated much faster than expected. 

A lease also costs less in opportunity cost. Let’s say the cost of leasing a car and buying it at the end of the lease is 115% of the value of that car. If  you defer paying for 60% of the car for 3 years or so you have the opportunity to spend that money you deferred in other ways, such as investing it. If you investments returned 25% over 3 years have broken even with the cost of buying outright while also hedging against depreciation.

Leases only make sense for wealthy people who don’t really care about the expense and know they’ll have a new car every 2-3 years, or for businesses that can leverage tax/cash flow benefits.

For everyone else, it is the single most expensive way to have a car in your driveway. It’s also the most restrictive if you find yourself needing to get out of the lease part way through.

This is purely from a finance perspective and nothing to do with what car you are buying:

If you are a person who changes or wants to change their car every 3-4 years anyway, leasing is the best option for you. You could make a point to finance the car outright and then trade it in for another after 3 years which may turn a profit but the difference would be negligible and then you are stuck with dealing with the hassle of selling it.

If you are planning on keeping the car for more than 3 years, buying (finance or cash) might be the right option but you have to do some calculations. Until the 3 year mark, leasing might be better but every passing day after that, the equation shifts towards buying being better than leasing.

Since cars are depreciating assets, it never makes sense from a financial perspective to change car every 3 years but not everyone cares about building wealth but rather actually enjoying it so no judgment there.

As for finance vs paying in full: you have to calculate based on the interest you will be paying vs interest rate you could get by investing (minus taxes). Less than 2% APR finance is a no-brainer, and you should always finance if you have the money to buy it outright. Beyond that you should do your own calculations. Your mental attitude also matters. If you are not the type of person who invests/saves - buy it outright rather than financing and spending the money on something else.

Who cares about resale when you're leasing? When you lease, you want a deal on the lease. You want an inflated residual so you can turn it in after 3 years paying less than market depreciation.

Can she set up charging at home? An electric car might work well, they have very low maintenance requirements. and fuel costs are low of course.

For leasing deals, have a look at leasehackr.com. Maybe she can find a 15k mile/year lease on something unpopular with a lot of stock for a reasonable cost - basically the manufacturer is getting their leasing arm to subsidize selling their excess inventory.

For financing, she should talk to some banks / credit unions to see what rates she can get. Unfortunately, if her financial picture doesn't look great she may be faced with high Interest rates. Then you can figure how much car she ca afford, and see if anything is in budget.

Hi all!

I am helping my girlfriend's sister get out of her $460/mo finance. I will say upfront that from a purely financial point of view, she should not even have a car; however, relying completely on mass transit is not really an option where we live, so for this thread please know I've already gone through that with her.

Anyway, other than not being able to afford $460 a month, she will not be able to afford paying lump sums for any of the maintenance that is rapidly approaching (mainly brakes and tires) so we need to get her out of this car now. I think she'll break even or have a little positive equity on it if we trade it in now. I have explained to her that leasing a new car is a luxury, however, I still think leasing might be a better option than financing new or used. She also is not able to drop a payment of several thousand to buy a beater.

I've been looking into leasing an Elantra for her, but with an MSRP around 24k it still seems too high for her and will probably only save her $100-150 a month. Financing one will lower payments but she'll end up in the same position (needing to do maintenance she can't afford) in 3-4 years and truthfully I don't think her financial situation will improve. Therefore I'm thinking that being able to give the car back before maintenance is due is the best decision, even if it costs more per month to lease. She also wants to tell them 10k miles but she will absolutely exceed that, I estimate 14k a year minimum for her driving needs. In theory we could say 10 or 12k and then avoid the over-mileage charge by buying it off lease, but then she's once again in the same position of needing to pay for maintenance.

I looked into used/CPO for her, and it just seems like saving the extra few thousand up front to drive out with 50k miles already on the car will also not be worth it. If a dealer has a car like that, rotors would be due in 10-20k miles after she drives it off the lot if they didn't already replace them - do you think they'd be up front about maintenance records if I asked?

What would you do in this scenario?

If my credit is bad, which is easier leasing or financing

If you lease a car, you don't own it. When the lease ends, you either buy it or give it back.

If you finance a car, you're buying it and it will be yours after the payment period ends.
The payments are going to be higher or you could have a much longer term because you're actually paying for the full price of the car instead of just the depreciation over the lease period.

If you want a car to keep then you buy it and finance if you can't afford to pay cash at purchase.
If you just need a car to use for a set period and don't mind limitations on usage then you lease.

The actual monthly payment amount is probably the least important metric of either deal.
Total cost is much more important to your overall financial health.

I can only tell you what we do and our approach. Others might--and will likely--disagree.

I consider an automobile a monthly expense, not a smart purchase. For example, I rent a storage unit. I didn't buy one. I subscribe to software for my work. I don't buy it. I rent our townhouse. I would never buy real estate again. So, I lease a car. It's a fixed monthly expense. I lease for three years at a time, to ensure my vehicle is under warranty. And I keep my monthly payment under $400. So, I never worry about the car. It's just there when I need it and I'm always driving a late model, reliable vehicle. At the end of the lease, I get another one.

Lastly, I lease because, financially, I don't want to take cash (maybe $50,000) from my investments that pay me monthly to pay for one and that basically pay for the lease payments.

Now, having said that, we do have one car that we own. It's a summer toy: a 2002 Miata LS.

If it's a car worth owning and holding on to, then buy (finance) it instead of spending lots of money to own nothing in the end. But if you're the type of person who likes to get a new car every few years, you might be better off leasing rather than buying and selling every time with a big depreciation hit. Obviously it would depend on the cars involved and what kind of deals you get, but leasing new luxury cars (and now EVs) is usually a better idea than buying due to how much they can depreciate.

Hello everyone! I am looking to buy a new car and I was wondering what the main difference was on financing a car vs Leasing a car, the car that I want would be around $250 per month to lease and it would be around $350 to finance. I have about $800 per month of wiggle room in my budget after savings, rent, etc… so I don’t really see a point in leasing my new car, but I would still love to hear any tips and suggestions. Thank you!

I’ve been leasing a hybrid Toyota Prius for the past year, but unfortunately, a tree recently fell on my car and it will most likely be declared a total loss. I’m still waiting for the insurance inspection and final decision, but I want to start researching my options now.
I’m open to either leasing or financing my next car, but I’m not very experienced with car buying or negotiating deals, so I’d really appreciate advice from people who understand the market.
My main priorities are:
1. Keeping my monthly payment and overall costs reasonable
2. Getting good gas mileage, ideally another hybrid
3. Reliability and low maintenance costs
4. Avoiding a deal that will cost me significantly more in the long run
I like the idea of financing because I would eventually own the car, but I’m concerned about depreciation, being responsible for repairs after the warranty expires, and potentially paying more overall. With leasing, I like having a newer car under warranty and fewer maintenance concerns, but I know I won’t own anything at the end. And also being worried about it being scratched or totaled and having to deal with leasing company.
For someone looking for the smartest and most affordable long-term option, would you recommend leasing or financing in the current market? Are there any particular car models/deals I should be looking at?

the mileage bit is the part thatll sink her leasing only works if you stay under the limit and the penalty at the end is brutal. 14k a year on a 10k lease is gonna be a couple grand when she turns it in

if she buys it off lease to dodge the fee shes right back to square one with a car that needs brakes and tyres soon anyway. might be worth checking if any dealers have a 15k mile lease option, the payment wont look as good but its cheaper than the mileage penalty

I currently an hitting around 13,000 - 14,000 miles per year so those limitations on a lease would be bad for me, thank you so much for the information!

First off she’s your girlfriend not your wife so you aren’t doing anything. That means you’re not cosigning and you’re not giving her money and you’re not leasing her anything

So she can either pay now or she could pay later

Or she pays Now by maintaining her car or she pays later by leasing or buying another car

Leasing is for people that are either stupid or for people that money is no object and it doesn’t matter to them that they aren’t building any equity and they’re just renting a car basically.

There may be some exceptions to that, but I doubt it.

There are almost always 0% financing offers on previous year's models at various manufacturers.

I see Subaru with 0.99% lease and finance offers on several vehicles.

There is no situation where you are "making money back" on a lease -- you are going to be paying more on monthly payments than the positive equity you might build up over the lease term.

You are still paying for the vast bulk of the depreciation on the vehicle, then returning it to be sold as a used car on at what is probably not a favourable value to you (at which point the depreciation on the vehicle is much slower). Sure, you might get a nominal amount of cash back, but you are still out of pocket for a significant percentage of the vehicle's purchase price.

Looking for some advice on car purchasing vs leasing. I live/work in downtown Calgary and want to get a vehicle this fall. I will definitely drive my car less than 15,000 km a year so I started looking into leasing and was surprised to see interest rates on leases can be as low as 1.5%. I'm looking at Subarus which do hold their value quite well, and I know a few people who made money back on their Subaru leases by selling to the dealership because the residual value was higher than they expected. Should I just finance a vehicle instead? Are leases worth it? Any thoughts/advice are welcome!

My husband has a 2013 Cadillac. The ac went out on it recently so he brought it to a mechanic for an estimate. Basically the mechanic gave a red-light on the car and said there are about $6000 worth of repairs on the car needed to fix it. The 2 most expensive problems being the ac fix and the wheel barrings and some other part that's attached to that. Those 2 repairs alone being almost $4000 to make the car safe. The problem is the car is only worth $14000. We have $11000 left on the loan amount. So we would essentially be paying $21000 or more with the interest. We are thinking we need to just sell the car and eat the difference in the loan and what we make off the sale? But we aren't sure that's the best option.

Our options are:

-trade in the Cadillac and get a new car on loan and then roll the leftover loan amount into the new loan

-sell the Cadillac privately and continue to pay off the remainder of that loan amount after putting the sale proceeds into paying off the original loan as much as possible as well as the loan for the new car

- trade in and lease a vehicle at a hopefully lower rate?

We are currently expecting and will be delivering baby sometime in the next 6 weeks so we need to get it figured out as fast as possible in a way that will be the least financially trying. The mechanic basically told him the car is unsafe at this time and I don't want either of my kids or my husband rolling around in a death trap.

I’m getting to a point with my current car situation that my brother is suggesting that I get a newer car, even though I’ve explained that money is extremely tight for me.

However, my credit is actually really decent and I’m getting a settlement soon from a car accident I was in almost a year ago. My thought was to buy another used car outright but he’s been explaining to me that he’d rather see me in something newer that won’t need as many repairs/with a warranty because he’s tired of working on my shit box cars 🤣😂

He said that if I put a decent down payment from my settlement that I could probably get my monthly payment down to $250 which I could actually afford with full coverage insurance separately of course.

However, he was also saying that leasing would be potentially a cheaper option and then once I drive the car for awhile, have the option to actually purchase the car since the value will go down after driving it.

I still need to go to my Dad about the idea (he’s been in the industry for almost 50 years where my brother has been in it for 20), but I also wanted to get ideas from other people outside of my family too.

TLDR; my brother wants me to get a new car and presented options to lease or finance with a big down payment but I need second opinions.