The decision over leasing or buying a car can be a difficult one. Complete car ownership might seem ideal but the finances may not be. Just like with any vehicle, car ownership costs are high and financing a used car can be expensive. Don’t worry! We’ll help you weigh up your options when it comes to your next car.
Understanding the Basics: Leasing vs. Buying
What does it mean to lease a used car? Essentially, it is not much different from leasing a new car. You’ll be renting the car for a set period and paying a monthly fee to use it. However, if you buy the car outright, you’ll either pay one lump sum up front to own the car or a deposit to finance it using an auto loan.
Pros and Cons of Leasing a Used Car
When looking at leasing a used car, it’s important to understand the pros and cons.
Lower Monthly Payments & Lower Upfront Costs
When you lease a used car, you are not buying it outright, so there are lower upfront costs. Typically, the monthly payments for a used car are much lower than for used cars as the vehicle will have already depreciated. This makes leasing an attractive and affordable option for many. It may also mean that you can afford to lease a higher-end used car than leasing a new one.
Limited Ownership and Mileage Restrictions
As with new cars, used car leases usually have mileage restrictions, meaning you could incur fees if you drive often and at long distances.
Warranty and Maintenance Considerations
Depending on the age of the car, it may still be under the manufacturer’s warranty, which would assist in case of any repairs. However, if it is not under warranty and the car breaks down, the repairs could be costly.
You will be expected to return the car in good condition, so you should be wary that if the car experiences extensive wear and tear this could cost you significantly as you will be charged for any damage. As used cars typically require more repairs than new ones, it’s important to know of the potential costs that might be incurred.
End-of-Lease Options: Buyout or Return?
When the lease is over, you’ll either return it. You’ll usually also have the option to buy the car for a predetermined amount, known as the residual value. This is often seen as an attractive proposition. If you decide after your lease that you can’t live without the car, you can buy it. However, if you think it’s time for something new, it’s easy to return it at the end of the lease and opt for something new.
Pros and Cons of Buying a Used Car
Car ownership often looks like the most attractive option, but there are always positives and negatives to every scenario.
Long-Term Cost Savings and Equity Building
As the car will have already depreciated in value, it will be a fraction of the price of a new model. If you take care of maintenance, you may be able to build equity in a used car, making it a good investment.
Freedom to Customize and Drive Without Restrictions
Unlike with leases, you are not contracted to return the car to anyone in the same condition as when you bought it. The car is yours to drive as you please. If you want to drive excessive distances or update the interior, you are free to do so.
Maintenance Costs and Depreciation Considerations
Used cars depreciate at a much slower rate than new ones, meaning they will hold their value for longer.
However, maintenance costs for used cars are typically higher than for new ones due to their age. There is also a higher likelihood that it is no longer under the manufacturer’s warranty, meaning repairs could be costly.
Resale Value and Trade-In Benefits
As used cars depreciate slower, you may get a better return on your investment if you choose to sell your used car. If the car holds its value well, you may even be able to sell it for more than you paid for.
Trading in your previous car for another used car can also help with finances. Some states will even reduce the sales tax you pay. That said if you then go to trade in the used car again, the trade-in value will typically be reduced.
Which Option Makes More Financial Sense?
Factors to Consider Before Deciding
Before deciding whether to lease or buy, there are a few factors you need to consider:
- Finance: Can you afford to buy a car outright? Maybe monthly payments are more suitable for you?
- Mileage: Leases often have mileage restrictions that are not applicable when you own a car.
- Model: Leasing can make it more affordable to drive a newer car than buying it.
- Freedom: Do you want to be tied into a contract or free to make your own decisions.
When Leasing Might Be the Better Choice
If you are looking to drive a newer model car for a significantly cheaper price than a brand new one, leasing a used model may be a smart choice as you will be able to do so for lower monthly payments.
Leasing is also a good option if you are not looking to drive the car for long distances or for long periods.
Leasing will also be of benefit to people who wish to switch cars frequently, and those who are not sure if they want to own the car outright at the end of their lease.
Moreover, if you have financial concerns, leasing means you won’t have to worry about a down payment on an auto loan, making it a much more affordable option.
When Buying Might Be the Smarter Option
If you drive often and at long distances, owning a used car might be the smarter option as you won’t be tied into rigid mileage restrictions.
Owning a used car will also be a good choice if you wish to customize your vehicle and don’t want to worry about contract restrictions.
Real-Life Scenarios
While the benefits of leasing a used car seem huge on paper, they can have their drawbacks. Essentially all cars are depreciating assets, and some have complained that leasing can sometimes mean paying excessively more in the long term for something that is going to continue to devalue. They would suggest instead buying a used car with an auto-loan from a brand that is known to depreciate slowly. That said, others have praised used car leases for less risk and higher return, ultimately leading to bigger profits.
Meanwhile, a Cox Automotive Study showed that 64% of used cars buyers reported satisfaction during the purchasing process in 2024, suggesting that 36% were not happy. That said, it was the highest rating since the Covid-19 pandemic, meaning things are looking up. Sadly, however, it has been reported that the used car inventory across the US is dropping, meaning higher prices and less savings when buying a used model over a new one.
There are also concerns about the condition of used cars, which do not have the same contractual obligations as leased ones. It is therefore advised for buyers to buy Certified Pre-Owned (CPO) cars that are certified to be in good condition by the car’s manufacturer and usually also come with a warranty. That said, going with a CPO car usually results in a heftier price tag.
In many ways, both leased and bought used cars are very similar. They often have the same maintenance, warranty and age considerations. However, the ownership part is a little different. Owning a used car gives you freedom to do whatever you want with it, whereas leasing can make driving it more affordable.
There are benefits to both leasing and buying a used car. Overall, it's important to assess your personal needs before deciding as to owning or leasing a used car.