Should I Lease or Buy My Next Car?

By Bowman “Rye” Thayer

Planning Associate

December 21, 2021

When it comes to car shopping, it can be very stressful deciding whether to lease or buy a car. As someone who recently purchased a new car, the whole process can be nerve-wracking if you do not engage in due diligence with your research. Car shoppers are constantly bombarded with different dealership incentives pressuring you to make a quick decision while on the lot. The truth, there’s not a simple answer when it comes down to buying vs leasing. The decision depends on both your personal and financial situation. Below are some points to ponder as you consider whether to buy or lease your next car.

Advantages of leasing

Lower monthly payments: One of the main advantages for leasing a car are the low monthly payments. In a lease term, the lessee only pays for the car’s deprecation plus interest. For a traditional car loan, your monthly payments are determined by the amount of the loan and the amount of interest you are required to pay over the course of the loan. If you are budgeting for the lowest monthly costs, then leasing is a great option. Below, is a hypothetical example between the monthly payments of leasing or buying a car.  In this example, your lease payment would be $262.08 compared with a $372.93 loan payment. This is based on a price of $20,000 and a 36-month lease vs. a 60-month loan. Details of your cost of leasing vs buying can be seen in the chart below.1


Price $20,000.00
Interest rate 4%
Down payment $1000.00
Other fees buy $0.00
Rate of depreciation 20%
Sales tax $1,250.00
Loan amount $20,250.00
Loan payment $372.93


Price $20,000.00
Interest rate 4%
Down payment $1000.00
Other fees lease $500.00
Residual percent 60%
Security deposit $500.00
Loan payment $262.08

New car every few years: Another perk of leasing is that you can drive a brand-new car every couple of years. Car leases typically range between 24 and 36 months. After the lease term ends, you can renew a separate lease with a brand-new car. The new car may come with a warranty coverage for repairs, thus lowering the potential expenses due to out-of-pocket repairs.

Favorable manufacture incentives and lease specials: Automakers often offer package incentives and rebates to promote car leases. These include cash rebates, subsidized interest rates, or subsidized residual value. These incentives are based on an inflated residual value, meaning that the estimated value of the car at the end of the lease is unrealistically high.2

Disadvantages of leasing

No ownership: While the lower monthly payments can be appealing to car shoppers, one important item to keep in mind is that lease payments will not end in ownership. Unless you select a buyout option at the end of the lease, you will continue making monthly lease payments without building equity. In layman’s terms, you will always make payments toward an asset that you will not own.

Lower flexibility on miles: Since your monthly payments are based on the car’s deprecation plus interest, a lease always comes with mileage limits. The reasoning is that a car dealer does not want your car to depreciate faster than the expected residual value at the end of the lease. Annual mileage limits range from 10,000 to 15,000 miles a year, with the majority coming in with 12,000 miles. Most leasing companies charge .15-.20 cents per mile over the amount allowed in the contract, meaning that you are liable to pay an extra $150-200 every thousand miles.

Require comprehensive and collision insurance: Leasing companies normally require the lessee to carry comprehensive and collision coverage on their auto policy. Lessors also require lessees to carry higher bodily injury liability limits. These requirements mean that leasing can cost more to insure than buying a car.3

Advantages of Buying

Monthly payments end with ownership: While the initial cost of buying a car is higher than leasing, the advantage is that your monthly payments end with ownership. Once a car is paid off, you could set aside cash that was previously used for monthly payments to cover future maintenance costs.

No mileage limits: Unlike a car lease, you are not restricted to an annual mileage limit when you buy a car. This gives the buyer more flexibility to choose how they want to utilize their car. If you are someone who puts more than 15,000 miles a year on a car, then buying would be the suitable option.

No wear and tear fee: While repairs and maintenance are normally covered in car leases, dealerships can charge extra fees for excessive wear and tear. While car buyers are on their own to cover maintenance costs, you will never worry about paying an extra fee for above normal wear and tear.

Disadvantages of Buying

Higher monthly payments: Unlike lease payments where monthly payments are based on the car’s expected depreciation plus interest, a traditional loan payment are determined through the loan amount, the interest rate, and the loan term. This makes monthly car payments higher in the short term compared to monthly lease payments.

Higher down payment: To lower your monthly payments and get the best loan rate, car buyers will need to put down a higher deposit. A general rule of thumb: aim to cover at least 20% of the purchase price of the car with a down payment. This can be unattractive to car shoppers who have limited cash reserves.

Depreciation: The intangible cost for owning a car is deprecation. The moment you drive the car off the lot, car buyers are susceptible to fluctuations in depreciation and resale value. According to industry experts, the value of a car drops by 20% in the first year of ownership, while losing on average around 15% of its value each year.4 Depreciation and resale value are influenced by the make, model, year, and type of car.

What’s the best option for me?

In the end, one option is not inherently better than the other, it all comes down to personal preference and your financial resources. If you value paying lower monthly payments and you are not making cross country road trips each year, then leasing may be the best option for you. On the flip side, if you value ownership in your assets and you tend to rack up thousands of miles on the road, then buying may be the better option. A key aspect of your decision, having confidence and taking comfort in the research you’ve done when you walk onto the car lot.

Modera Wealth Management, LLC (“Modera”) is an SEC registered investment adviser. SEC registration does not imply any level of skill or training. Modera may only transact business in those states in which it is notice filed or qualifies for an exemption or exclusion from notice filing requirements. For information pertaining to Modera’s registration status, its fees and services please contact Modera or refer to the Investment Adviser Public Disclosure Web site ( for a copy of our Disclosure Brochure which appears as Part 2A of Form ADV. Please read the Disclosure Brochure carefully before you invest or send money.

This article is limited to the dissemination of general information about Modera’s investment advisory and financial planning services that is not suitable for everyone. Nothing herein should be interpreted or construed as investment advice nor as legal, tax or accounting advice nor as personalized financial planning, tax planning or wealth management advice. For legal, tax and accounting-related matters, we recommend you seek the advice of a qualified attorney or accountant. This article is not a substitute for personalized investment or financial planning from Modera. There is no guarantee that the views and opinions expressed herein will come to pass, and the information herein should not be considered a solicitation to engage in a particular investment or financial planning strategy. The statements and opinions expressed in this article are subject to change without notice based on changes in the law and other conditions.

Investing in the markets involves gains and losses and may not be suitable for all investors. Information herein is subject to change without notice and should not be considered a solicitation to buy or sell any security or to engage in a particular investment or financial planning strategy. Individual client asset allocations and investment strategies differ based on varying degrees of diversification and other factors. Diversification does not guarantee a profit or guarantee against a loss.

Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, and CFP® (with plaque design) in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.