There's a lot at stake when you decide between leasing and buying a vehicle.

The big factor is money -- how much will you spend on buying or leasing a vehicle and how much can you potentially save in the short- and long-term?

But there are other issues, too. Do you want to drive the same car, truck, or SUV for 10 years, or would you rather mix it up and switch vehicles every two or three years? Would you like to test-drive a car you really like for two years, then buy it outright?

Or, do you drive so infrequently that your mileage is so low on an annual basis, that it makes more sense to lease rather than buy, and put less wear and tear on your vehicle (and on your pocketbook?)

The key in deciding whether to lease or buy really comes down to three big issues: money, time and your unique driving experience (and which of those two options best meets that experience.)

How Leasing Works

While most adult Americans know the basics of owning a vehicle, leasing is more of a mystery. Before we get into the pros and cons of owning versus leasing a car, let's get up to speed on what leasing a vehicle really means.

Leasing has a lot going for it, from a consumer finance point of view. The down payment is usually lower on a leased vehicle, as is the monthly payment. You get to turn in the car after the lease has run out (usually after two or three years), and get inside a new set of wheels.

On the downside, you don't own the car, so you're basically making those monthly payments on a rental basis. Also, auto companies usually put strong restrictions on leased vehicles -- especially on mileage (the more you use after the limit, the more you pay), maintenance (turn in a vehicle at the end of the lease that's not in good condition and you'll get a bill for the repairs) and the quality of your credit score, which can affect your buying versus leasing decision.

To actually lease a vehicle, you'll need to take these steps:

  • Educate yourself. Launch your vehicle lease campaign by examining the different types of vehicles that interest you. Make sure to check out the factory invoice price (i.e., what the dealer paid for the vehicle) and start going online and visiting dealer lots to see who's offering the best leasing deal.
  • Start negotiating. The conventional wisdom says you can't negotiate the price on a leased car, truck or SUV. That's not always accurate. Once you've identified a potential lease, go into the experience knowing you actually can negotiate price. When you talk to the dealership, or talk to the representative at an online auto site like Vroom or Cars.com, let them know you've done your homework, and you know how much you want to pay for a leased vehicle. Begin your negotiation on the vehicle's total sales price -- and not the monthly payment. You'll likely get a better offer that way, as monthly payments include costs that may not make it into the opening price of the vehicle.
  • Don't be surprised by upfront fees. Those up-front fees are a fact of life for auto lease consumers, so don't be shocked when the topic comes up. Just like buying a car or truck, you'll be facing upfront costs, like the vehicle's first monthly payment, taxes, title, tags and registration -- and usually a security deposit, too.
  • Manage your down payment. When you put a down payment on the table, that's a check you're not going to get back as a vehicle-leasing consumer. Given that reality, the thinking here is that keeping your down payment low is a good idea. That's because an inflated down payment of, say, $3,000, might be unnecessary, especially if you're short on cash and need the money. In that instance, a $2,000 down payment may make more sense -- you'll still get the vehicle, but you'll have that extra $1,000 in your bank account. That could be worth the added $20 per month you may have to pay for the lease with the lower down payment.
  • Read the fine print. Auto lease contracts are loaded with fine print and legal mumbo-jumbo. That's because auto dealers know they may be getting the car back after the lease is over, and they want it back in pristine condition. Dings, scratches and (hopefully not) major repairs will come out of your pocket, so you'll want to understand potential costs and restrictions when the vehicle is returned. The same goes for mileage limits. If your lease contract calls for a maximum odometer reading of 30,000 miles after a two-year lease, any mileage over that will trigger cash penalties, as well. Also, it's worth knowing if you turn the vehicle back in before the lease return date, that will lead directly to a hefty early termination fee -- also paid out of your pocket.
  • Purchasing your vehicle after the lease is over. Inevitably, your auto dealer will ask (or strongly encourage) you to buy the vehicle once the lease is up. The fact is, the dealership doesn't want the car, truck or SUV on the lot -- not when they have a live buyer in you, who's already invested so much time and cost into the vehicle. Just beware that the price they'll likely offer will be significantly higher than its market value. Be savvy -- a few months before the end of the lease do some research and come in with an offer lower than the market price (find that price on KellyBlueBook.com, or Edmonds.com). Rather than take the vehicle back on the lot, the dealer may well go for the deal.

Five Benefits of Leasing

Leasing a vehicle definitely has its advantages, and those benefits usually start with costs -- among other perks:

1. It's less expensive

Both the down payment needed and the monthly payments are typically lower when leasing a vehicle, compared to buying a vehicle. The reason? In a lease deal, you're paying for the vehicle's depreciation -- and not the entire cost of the vehicle.

2. You can drive a nicer car, truck, or SUV

Since you have more budget room with a vehicle lease, you can afford to upgrade and inject higher quality into your ride.

3. No trade-in hassles

When your vehicle lease does end, you simply drop it off at the dealer and leave the keys. There is no trade-in option to worry about.

4. Up-to-date features in your vehicle

Since you're swapping out of an old vehicle lease and into a new one every two or three years, you're getting a new car, truck or SUV with the latest features and gadgets. When you own a vehicle for 10 years, that's not really an option.

5. Tax cuts

If you're a business owner who leases a vehicle, you may be eligible for tax breaks on the lease, depending on the state where you reside. A good tax accountant can help you get the most tax savings in a lease deal.

Five Downside of Leasing

There are disadvantages of leasing a vehicle compared to buying one. The following are at the top of the list:

1. Mileage limits

Virtually all vehicle contracts come with auto mileage limits, usually up to about 15,000 miles per year. If you have a two-year lease and your odometer records, say, 32,000 miles when you turn the vehicle into the dealer, you're on the hook for "over mileage" financial penalties. Many contracts call for an additional $0.20 per mile for overage -- and that can add up if you go way over the mileage limit.

2. Wear and tear costs

Auto dealers will also go over your vehicle with a fine-tooth comb when you finally turn it in at the end of a lease. Language in your lease contract will likely call for the vehicle to be returned in its original condition -- a near-impossible task, especially for leaseholders with children or pets. Any wear and tear at the end of the lease will incur extra charges, as well.

3. You need to prove you're up to date on maintenance

Auto lease contracts also usually include provisions that the leaseholder bring the vehicle in for regular check-ups and maintenance. Keep the receipts, as you'll likely be asked to prove that your vehicle was checked in for regular service. You'll also be required to buy so-called gap insurance to cover the costs if the vehicle is badly damaged or even totaled in an accident. That insurance money goes to the dealer.

4. Once you turn the vehicle in, you're out the money

The cash you put into a lease for a down payment, monthly payments and any extra fees and penalties go right to the dealer -- and out of your pocket forever. There's no recouping those payments once you turn a car in at the end of a lease.

5. Your credit score needs be good

Given the risk taken by auto dealers in turning over a new vehicle to a leasing customer, it's no surprise that lease applicants need a strong credit score to qualify for a lease deal. Typically, getting approved for an auto purchase is easier than getting approved for an auto lease.

Five Benefits of Buying a Car

Although you may not be able to show off a luxury vehicle, there is plenty of reasons to buy a car, instead of leasing. Here are five top reasons: 

1. You own it

When you buy a car and make all the payments, you own the vehicle. No mileage charges, no early turn-in fees, and no wear and tear fees paid out to auto dealers. It's your vehicle.

2. Your car has resale value

Unlike a lease deal, your car, truck or SUV is resalable at any point. Once you pay the loan off, any cash you earn by selling the vehicle is all yours to keep.

3. You don't need to show anyone your maintenance receipts

While it's always a good idea to keep your vehicle in pristine condition, you won't be required to show your auto dealer that you check your car in for a tune-up.

4. No need to buy extra insurance

While you'll be required to purchase auto insurance, you won't need the extra insurance an auto lease usually demands.

5. Credit checks are usually easier to clear

When you buy a car, truck or SUV, chances are you can qualify for financing with a lower credit score, relative to a car lease. Since the dealer doesn't expect to ever take a purchased vehicle back, there's less risk -- and less need for a buyer to have a sterling credit score (although you will need a decent credit score to buy a car.)

Five Downsides of Vehicle Ownership

There are negatives to owning a vehicle, and anyone weighing an ownership or lease experience needs to know them. These downsides are front and center.

1. You're pretty much stuck with the vehicle

Unless you sell the vehicle after a few years, chances are you'll own the vehicle for a long time -- maybe even 10 years or more. In time, you'll miss out on new technology advancements that are regularly featured in fresh, out-of-the-showroom vehicles -- and can make for a more enjoyable ride.

2. You'll pay more for a purchased vehicle

Given the high cost of interest attached to auto purchases, which can add thousands of dollars to vehicle purchase costs, you'll wind up paying more money, and paying more in monthly payments, over the long haul compared to a lease deal.

3. You'll need a higher down payment

Right out of the gate you'll need a bigger down payment for an auto purchase (that's because the total cost of buying the car is substantial, compared to a lease.) Factor in about 10% of the total cost of your car, truck, or SUV for a down payment.

4. You'll have higher monthly payments

Car purchase deals usually come with higher monthly payments, given the significant amount of money and financing involved in a new vehicle purchase. Depending on how much you put down for the vehicle, and depending on the size of your auto loan, expect to pay anywhere from 10%-to-30% more for your monthly payments as the vehicle owner.

5. Your investment starts depreciating the moment you drive the vehicle off the lot

Buying a car, truck, or SUV actually is an investment -- an investment that immediately loses value in the first mile you drive the vehicle. Yes, you can resell the car, but likely at nowhere near the price you paid for it originally.

How to Choose Between Leasing Vs. Buying

If you have the income and the down payment needed for an auto purchase, you'll have all the privileges of ownership that any car buyer possesses. If you like the idea of a sweet new ride every two-or-three years, and don't mind the fact that the dealer will be focused on getting the vehicle back in optimal condition, then leasing could be for you.

Throw into the mix these big factors when deciding to buy or lease a vehicle:

  • The number of miles you drive each year
  • The amount of money you've budgeted for a new vehicle
  • Your diligence in keeping your car, truck, or SUV in superb condition
  • Your credit score
  • Your preference of holding on to a vehicle for a long period of time as an owner, or paying to basically rent a vehicle for several years as a leasing customer.

Determining your response to the above factors will help you inch closer to a decision on buying versus leasing a vehicle, and landing in a spot that makes the most sense for you.