Buy or Lease

Ah, the age-old question. For years I’ve gone back and forth over this and, finally, having done both now, feel like I have a decent sense of when each option is appropriate.

When to buy

  • You drive a lot of miles
  • You have a car to trade
  • You don’t drive very often
  • Your job is cyclical, and pay isn’t very regular


When to Lease

  • You drive often or commute every day and more or less know your mileage
  • You have a pretty steady career/ income
  • You’re trying out a new car from a manufacturer
  • You prefer fixed costs


Ok, so some of those answers may seem obvious and some may have you shaking your head in disagreement, and none mention price. Strange, I know, but hear me out.

So, to me the money side of this isn’t really an issue because it is what it is. You can get into the same car cheaper per month if you lease. Done deal, no further questions.

But what are you giving up for that cheaper price? Two things, equity, and flexibility.

When you lease, you’re basically signing a payment contract. If you stay within the contract, your costs are pretty low and also pretty well known. So again, if your life is on a steady track for a while this is a great option. The downside is you’re locked into that contract for whatever term you chose, and some manufacturers can make you go as far as paying off the whole remainder of your lease at once to get out early, so you’re really pretty stuck. The other thing is when that contract is up, you’re back to square one. That money you paid has gone poof and you’re going to have to foot another down payment.

Also, because you don’t have the equity in the car, if you’re not going to use the miles you purchased, you’re really hurting yourself. If you buy a car and don’t drive it at least you’re increasing your ownership in the meantime, so you’ll get more of your money back when you sell.

When you buy a car all you’re doing is taking on the responsibility to pay back a loan and it’s up to you to keep the thing safe and running. It’s a simpler transaction in my mind, and the beauty of any loan is if you pay it back you can walk away. In the case of buying a car you can hopefully pay it back by simply selling the car and making the bank whole. Now if the car depreciates too quickly you can end up underwater and have to pay a little extra to get rid of the vehicle. But, paying extra to leave early is a maybe when you buy and a certainty when you lease.

So even though people tend to think of buying as what to do if you want to own the car ‘till the doors fall off. I think it works well for people in unsure situations because it gives them an out. You may have to settle for a little older or more basic car to make the payments work. But, if things go south at a job and you need to make some changes you’ll be thanking yourself for being able to drop that car payment. It’s also much easier to get a fair price today with utilities like Kelly Blue Book keeping people from swindling you out of car value.

Then the hybrid option is lease-to-buy which is widely purported as the most expensive way to buy a car. This approach basically has you do the whole lease contract gig, then you turn it in and they sell it back to you as a used car which generally has higher financing costs than a new one. So, unless you’ve found true love with your lease, this doesn’t make much sense from a cash flow perspective.

To summarize, I think it’s important to think past the numbers when you look at this decision. Find a monthly output you can afford, then think of how much you plan to drive the car and how much flexibility is important to you. This should help you arrive at a decision you’ll be happy with in the long term.