New! Eligible SoFi members can invest in upcoming IPOs before they’re traded on the public market—only in the SoFi app.* Learn more

Leasing vs. Buying a Car: What’s Right for You?

April 15, 2019 · 4 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

Leasing vs. Buying a Car: What’s Right for You?

So you’ve decided to get a new car. You’ve picked out everything from the perfect color down to the floor mats, and you’re ever so close to driving your dream car off the lot. But wait, pump the brakes! There might be one crucial detail you’ve yet to consider: do you lease or do you buy?

Check out this helpful guide about leasing vs. buying, plus a few key things that will help you decide how to finance your next vehicle.

The Difference Between Ownership and Leasing

When you own a car, you purchase the vehicle outright from a dealer or private owner via cash or financing. You can keep it for as long as you want, and you can sell it in the future, if you wish.

When you lease a car, you do not own the vehicle. Instead, you make monthly payments to the owner for the right to use the vehicle. You must return the car at the end of your lease agreement or buy it at that time.

Upfront Costs

With buying a car, the upfront costs are fairly obvious. You either need enough money to buy the car outright, or you need a big enough downpayment to start financing the vehicle.

With leasing, the upfront costs can vary depending on the car dealer. Typically, the initial costs to lease a car include at least the first month’s payment, a security deposit, taxes, registration, and an acquisition fee.

Monthly Costs

If you buy a vehicle outright you will not have to make any monthly payments. However, if you take out a loan, you will need to pay back the principal, plus interest, each month.

When leasing a car, you will be required to make monthly payments that include interest charges and taxes.

Things to Know About Leasing

When you own your car, it’s yours—and you can drive it as often as you’d like.

When you lease, there can be terms and conditions related to how often you can use the car. Most leases come with a limit on the number of miles you can drive in a given year.

If you exceed those mileage limits you may incur penalty costs . Beyond mileage, you may have to be more careful when driving a leased car as any scratches, dents, or dings could come with wear-and-tear penalties .

Consider Your Lifestyle

If you’re someone who simply loves to go on road trips with your mountain bike, surfboard, and camping gear in tow, owning may be a good option for you. That way, you never have to worry about how many miles you’ll log or the scratches your car will get as you drive through the forest.

If you’re a city-dweller looking for a commuter car, or if you like to have the newest model with the latest tech accessories, leasing a car may be the way to go. That way, when your lease is up, you can look into something new.

Consider Your Finances

Before making a decision to buy or lease a car, it’s crucial to look at your current financial situation. Do you have enough money tucked away to purchase the car, and would you still have money left over in your savings?

Or, if you’re looking to take out a loan, do you have enough money coming in each month to cover loan repayments? Do you have enough money in an emergency fund to cover unforeseen events? If you can answer yes to these questions, you may be in good shape to buy a vehicle.

As for leasing, you should assess whether you have enough income each month to cover the cost of the lease payments. You also want to ensure that you have enough money to cover emergencies and unexpected expenses that may come up, including costs for going over your mileage limit.

According to Market Watch , a typical lease can charge an extra 12 or 15 cents for each mile you drive over your mileage threshold. They also note that a typical lease agreement grants 12,000 to 15,000 miles per year. So, if you drive a significant amount over your lease agreement, you could end up paying a lot in fees.

What’s Right for You?

When it comes down to it, there are lots of things to consider when picking out a new car. Hopefully, this guide helped clear up some issues you may not have thought about before.

Need help saving for your car down payment? Sign up for SoFi Relay. You can keep tabs on your cash flow and spending habits, to make sure you are putting enough aside for your future car. You can also talk one-on-one with a financial planner to set goals for your money!

Get started with SoFi Relay today!

The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. Advisory services offered through `SoFi Wealth, LLC. SoFi Securities, LLC, member

All your finances.
All in one app.

SoFi QR code, Download now, scan this with your phone’s camera

All your finances.
All in one app.

App Store rating

SoFi iOS App, Download on the App Store
SoFi Android App, Get it on Google Play

TLS 1.2 Encrypted
Equal Housing Lender