The Steering Column: Lease or buy? The great debate for today’s drivers

The automotive landscape is a dynamic mix of rapid technological advancements, evolving consumer preferences and shifting economic conditions. Still, the question remains: Should you lease or buy your next car?

With the average price of a new vehicle close to $50,000, deciding to buy a car or lease one for a few years has significant financial implications. And now, car shoppers must also navigate the marketplace with tariffs on imported vehicles.

The case for leasing

Leasing has become increasingly attractive, especially for shoppers prioritizing newer models. A 2024 report from the finance experts at Experian shows that almost 25% of all new vehicles were leased, up from nearly 23% the previous year and about 17% in 2022.

What’s driving this boost in leasing?

• Financial benefits: Leasing typically offers lower monthly payments than buying. During the lease term, you only pay for the vehicle’s depreciation plus interest and fees. This financial structure often allows drivers to afford a higher-end model. Leasing typically requires a smaller down payment than buying.
• Latest tech and less maintenance: Leasing allows tech enthusiasts to drive vehicles with the newest bells and whistles every few years. As automotive technology and safety features rapidly advance, leasing allows you to stay current without a long-term commitment. Most leased vehicles also remain under the manufacturer’s warranty throughout the lease term, significantly reducing repair expenses. Many leases include routine maintenance, such as oil changes, brake inspections and engine tuneups, representing substantial cost savings over time.
• Flexibility: Lease terms typically run for two to three years, after which you can return the vehicle and lease something new. That provides flexibility for those whose needs might change. Leasing also allows you to try before you buy.
• Electric vehicle appeal: Leasing particularly appeals to those interested in electric vehicles with advanced driver-assistance technologies. A leasing loophole in the Inflation Reduction Act makes leasing an EV attractive because consumers can benefit from the $7,500 tax credit, regardless of income or the vehicle’s battery sourcing or manufacturing location.

Leasing drawbacks

Despite its appeal, leasing has significant limitations that might make it less suitable for many.

• Continuous payments and no equity: The most significant disadvantage of leasing is you never build equity in the vehicle. When you return the car, you have nothing to show for the up-front cash due at the start of the lease or the monthly payments made. If you lease one vehicle after another, you’ll face continuous monthly payments indefinitely.
• Mileage limits, wear-and-tear concerns and early termination fees: Lease contracts typically impose strict annual mileage caps, usually between 10,000 and 15,000 miles, with excess mileage penalties ranging from 20-50 cents per additional mile. Additionally, you must return the vehicle in good condition or face excess wear-and-tear charges. If you need to end your lease early, you’ll likely face substantial termination fees and penalties that could equal the lease amount for its entire term.
• Limited customization: Lease agreements generally prohibit vehicle modifications, which can be disappointing for those who enjoy personalizing their cars.

Benefits of buying

Purchasing a vehicle, whether with financing or cash, offers distinct advantages.

• Building equity and freedom from payments: You build equity with each monthly payment. Once you have paid off your loan, you own a tangible asset that can be sold or traded. Experts generally agree that buying a car is the better financial decision for the long term. The longer you keep a vehicle after paying off the loan, the more value you extract from your investment.
• No use restrictions: Ownership eliminates concerns about mileage limits or wear-and-tear standards. You can drive as much as you want and customize your vehicle according to your preferences. This is particularly valuable for long-distance commuters, road-trip aficionados and car enthusiasts.
• Predictable long-term costs: While monthly payments for purchased vehicles are typically higher than lease payments, they eventually end. Additionally, insurance costs for owned vehicles may be lower than for leased cars.

Navigating the market

Several factors in the automotive landscape can influence your lease-versus-buy decision:

• Depreciation: New cars lose 20%-30% of their value within their first few years. This depreciation represents a significant cost for buyers who plan to sell within a few years. It is less relevant for those who intend to keep their vehicles long term.
• Pricing: New car prices are about 1% higher than a year ago. However in February, 11 of the nearly 40 brands tracked by Kelley Blue Book had lower average transaction prices year over year. Look for deals in the hypercompetitive compact SUV category, which includes the Chevrolet Equinox, Ford Escape, Honda CR-V and Toyota RAV4. We’ll see if new car prices start climbing because of tariffs.
• Interest rates: As of last month, Cox Automotive reports that the average new auto loan rate is 9.68%. The 25-year highs in rates force some consumers to consider less-expensive older cars and bypass leasing or buying new vehicles.
• EVs: Cox Automotive predicts approximately 10% of cars sold in 2025 will be electric. Roughly 15 all-new EV models will be available this year. There is speculation that the new administration will close the leasing loophole, but that cannot happen immediately and might not happen at all. Taking away that $7,500 incentive will make EVs out of reach for many consumers wanting to lease a car.

Personalize your approach

Ultimately, whether leasing or buying is best depends on your circumstances.