Car Leasing vs. Buying: Pros & Cons
For many people, the choice to lease or buy a car depends on driving patterns, monthly budgets, personalities, and individual needs. In some instances, leasing a car can be a wiser, more affordable option; in other cases, financing a car is smarter. It’s all a matter of preference, which makes the decision to finance or lease a difficult one.
Simply can’t decide between buying, financing or leasing a vehicle? Below is a comparison of a closed-end car lease vs. a traditional purchase or car loan to help you get started.
Leasing vs. Buying: Side-by-Side Comparison
| Leasing | Buying | |
|---|---|---|
| Ownership | When leasing a Honda or any other vehicle, you do not build any equity as you are not the owner. You are required to return or purchase the vehicle at lease-end. | When purchasing a vehicle, you own the vehicle and are responsible for all depreciation and costs associated with ownership. |
| Monthly Payments | Monthly lease payments are generally lower than traditional monthly loan payments. You are paying vehicle depreciation only for the term of the lease, plus any rent charges, monthly use taxes and fees. | Monthly loan payments are usually higher than monthly lease payments. You are paying the entire purchase price of the vehicle, plus interest, sales tax, and other charges or fees included in the loan. |
| Up-Front Costs/Drive-Off Charges | With a car lease, up-front costs generally include: the first monthly payment, a refundable security deposit (this may or may not be waived by certain lenders), capitalized cost reduction (down payment) and additional charges such as taxes, registration and dealer handling fees. Up-front costs when leasing can be lower or higher than financing fees, depending on the vehicle's value. | When you buy or finance a car, up-front costs generally include: the cash price of the vehicle or a down-payment, and additional charges such as taxes, registration and dealer handling fees. Down payments when buying or financing can be higher than leasing fees, depending on the vehicle's value. |
| Deals & Specials | Manufacturers have numerous lease incentives and offers available each month. | Manufacturers offer finance specials each month. Your car dealer may also have featured or manager's specials on new and used cars. |
| Termination | In a lease, there are fees for early termination. Most lease terms are for 24-48 months, and choosing to end a lease early may require you to pay off the remaining lease balance in its entirety. | With a typical car loan, you have the flexibility to sell or trade your vehicle at any time without any termination penalties. However, you are responsible for the loan pay-off balance. In many situations, you may owe more on your vehicle than your vehicle is worth (an "upside-down" loan). |
| Mileage Restrictions | Under the terms of a car lease, you're restricted from driving over the predetermined mileage, usually 12,000 or 15,000 miles per year. At lease-end, you may owe a penalty based on the number of miles over the contracted amount. This overage penalty varies by dealer and lender, but expect being charged $0.15/mile. You can build in additional mileage up-front, however. | When you buy a vehicle, you are free to drive as many miles as you wish without penalty from the loan company. When you trade your vehicle, the market value will be adjusted appropriately based on the number of miles on the vehicle odometer. |
| Maintenance Costs | During the lease, you are required to keep up with your routine maintenance, including oil changes, tire rotations, wheel alignments, etc. However, repair costs should be negligible as your new-vehicle lease will include the manufacturer's full warranty. | When you buy a vehicle, you are responsible for all maintenance costs and repair costs not covered by warranty. These costs will increase over time, especially when your vehicle's warranty lapses. |
| Warranty Coverage | All leased vehicles are covered by the manufacturer's full warranty. Honda vehicles are backed by a 3-year/36,000-mile limited warranty, 5-year/60,000-mile powertrain warranty, and additional coverages. Ask your Honda dealer for mode warranty details. | All new vehicles are covered by the manufacturer's full warranty. If you finance a used car, you may not be covered by a vehicle warranty. To continue coverage, ask your dealer if any Extended Vehicle Service Contracts are available. |
| Insurance Premiums | You are responsible to provide insurance according to the lease contract. All leased Hondas require its owner(s) to be insured. You may pay more for insurance on a leased car due to its newer age. | You are responsible for insurance when you purchase a vehicle. It is a requirement by law to have insurance, but you are not contracted to do so with a lender. As your vehicle ages, auto insurance premiums will usually decrease. |
| Vehicle Return | At the end of the lease term, you have several options: return the vehicle, pay termination costs (if any) and "walk-away" from the vehicle, or choose to buy your vehicle for a predetermined sum. | If you are purchasing your vehicle, you are free to sell or trade your vehicle at any time. Loan balances must be paid, however. |
| Resale Value & Depreciation | You are not responsible for any depreciation when leasing a car. | You are responsible for any depreciation when purchasing a car. The car's value will be assessed at the time of resale or trade-in. |
| Excessive Wear and Tear | At lease-end, you are responsible for any unusual wear and tear on the vehicle per your lease agreement. Conditions that would necessitate a charge include: a nonmatching set of tires, underperformed maintenance, large dents or scratches, damaged auto glass, etc. Fees for excessive wear and tear will vary by lender. Loyal Honda customers will have additional wear-and-tear fees waived when re-leasing or purchasing a new Honda. | There are no limits or penalties to you regardless of vehicle condition, as the vehicle's true value is decided by its market value. |
| Modifications | You are not allowed to modify your leased vehicle with aftermarket or non-OEM accessories. Speak with your dealer if you'd like to request the installation of an OEM accessory. | As its owner, your vehicle can be modified at will. However, a modified car may not increase in value; in fact, modified vehicles usually fetch less than market value when sold. |
| New vs. Used | Only new vehicles can be leased. | You may purchase or finance a new vehicle or used vehicle. |
| GAP Coverage | A vehicle lease may include GAP coverage, though this isn't always the case. Speak with your car dealer for more details. All vehicle leases facilitated by Holman Honda Centennial include GAP insurance coverage. Click here to learn more about GAP insurance. | With a traditional loan, you must purchase GAP coverage to protect your financial well-being. |
Should You Lease or Buy a Car?
The choice to purchase/finance or lease a vehicle is a big decision. Don’t make that choice without performing your due diligence.
Compare different lease offers and terms, such as up-front payments including the capitalized cost reduction amount, length of the lease term, monthly lease payment, lease-end fees, mileage allowed and excess mileage fees, purchase option at lease-end, gap coverage.
Before choosing to finance a car, estimate your monthly payments to ensure your budget can keep up. You can then compare that monthly payment to the total cost of leasing over the same length of time.
If you need more assistance or information about buying vs. leasing, we’re here to help. Contact our team at . Holman Honda Centennial is your Honda Lease Center located in Centennial, Colorado. We serve the entire greater Denver area, including Aurora, Littleton, Parker, and Lakewood, CO.
