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Why You Should (Almost) Never Lease A Car

A car lease gives you a brand-new car for a low monthly payment; what’s not to like? Everything. Here are the many reasons why you should never lease a car.

Car leases are tempting: You get brand new wheels for a low monthly payment. Financially, however, it's a terrible idea.We make choices every day based on personal preference: coffee versus tea, boxers versus briefs, etc.

Some financial choices, however, aren’t so clear cut. After all, we can’t make spending decisions based on preference alone. If we did, we might all be living in luxury for a brief period before landing in bankruptcy.

An obvious, often misunderstood example is buying versus leasing a car. The decision to buy or lease a car seems like one of preference: Would you rather always drive a new car at a relatively low monthly payment or finance a car that you’ll someday own outright?

Of course we have to remind you that, financially, the best way to buy a car is to pay cash for something pre-owned to avoid paying both interest and off-the-lot depreciation.

That said, many people aren’t in a position to pay cash for their cars, and auto loans are the only way they can afford one. Leases, by contrast, allow you to drive a car for a fixed period of time (often three years) while making monthly payments until the lease expires.

Related: Car affordability calculator

Why leases are so tempting

“Probably the main advantage to leasing is a lower payment,” says Jerry Love, a member of the National CPA Financial Literacy Commission. “If you plan to keep the car only a few years — say three years max — then leasing allows you a smaller payment, and you don’t have to worry about the trade-in value.”

The latter concern is important because new cars depreciate the moment you drive them off the lot. And whereas a lease allows you to get a new car every few years, those purchasing a new car will likely hold on to it for much longer, its value dropping with each passing year until it’s time for a trade-in.

“The initial cost of purchasing is higher than leasing; this includes a downpayment as well as a higher monthly payment,” says Allyson Baumeister, a member of the Texas Society of Certified Public Accountants.

For somebody on a budget, it’s easy to see why leases are so tempting: You get a brand new car and a monthly payment that’s lower than a car loan.

But leases are a devil in disguise.

For one, leases have mileage limits where you’re penalized if you drive over that set amount; these penalties can range from five to 20 cents a mile. It’s important to determine ahead of time how you’ll use the car (for short- or long-distance driving) and what those mileage limits are. A cap of 40,000 miles will allow you more wiggle room than 30,000, but you’ll pay extra up front.

What’s more, a lease allows for normal wear to the car, but “if the dealership considers the … the vehicle to have wear and tear above [normal] at the end of the lease, they can charge you extra,” Love says. You can get a better idea of what “normal wear” means by quizzing the car dealership and studying the lease terms.

Why buying is better

Love notes that if the dealership is offering 0 percent financing, and you plan on driving the car for a long time, buying is the way to go. If the financing terms are higher, “Frequently, credit unions will have a favorable rate. And if you have an established banking relationship, you should absolutely check with them for their rate.”

Related: A case for local banks and credit unions

Another member of the Financial Literacy Commission, Clare Levison, notes that car payments will eventually end, whereas lease payments won’t until you turn in the car.  “With buying, eventually you will have paid the car off and no longer have the expense of the monthly payment.”

Regardless, “When you lease a car, you make payments for a specified period of time and then at the end of the term you have nothing to show for your money,” Baumeister says. “You own nothing. However, when you buy a car, at the end of the term, you own a car.  You can keep that car indefinitely or sell that car for value.”

Related: Auto financing for smart people: tips for saving on your car loan

An example: Buying versus leasing for six years

Some people need to see the numbers, so we looked long and hard for a lease deal that would seem to beat out buying.

We found a promotion for a 2014 Honda Accord Sedan 2014 lease deal listed by (you can find similar deals here). After $1,999 down, the lease payments are just $199 a month for a 36-month, 36,000 mile lease. The total cost for three years comes to $9,163. Let’s assume you found a similar lease again for another three years. Your total cost comes to $18,326, or $3,054 a year for six years.

The same vehicle had a target price of $20,840 according to car pricing service If you put the same $1,999 down and financed the car for 48 months at 2.5 percent, your monthly payment would come to $412.88. At the end of the four-year loan, the total cost to purchase the car (including interest) comes to $21,817. Over six years, your annual cost would come to $3,636 a year.

So far it seems like leasing is way cheaper … by almost $600 a year!

But we’re forgetting something: After the loan is paid off, you own your car. You have an asset. According to Kelly Blue Book, a 2008 Honda Accord LX in mid-grade condition fetches about $10,000 on the private market. So whether you sell the car or apply the trade-in value toward your next purchase, your actual cost of ownership is reduced to $11,817 or $1,969 a year. That’s a savings of $1,085 a year and $6,508 over six years.

Although one of the drawbacks to buying a car is the need for more regular maintenance as it gets older, the savings over leasing should provide plenty of cash leftover.

Is leasing ever a smart option?

Here’s the ugly truth: For most people, leasing doesn’t make financial sense. “Buying a car is almost always better than leasing a car,” Baumeister stresses.

There are some exceptions for business owners or others who can deduct certain vehicle costs. For everyone else, leasing a car should be considered a luxury.

Lease a car if you simply love driving a new car every three years and the cost is worth it to you. As long as you’re aware, it’s fine to make a conscious decision to spend more for your cars than might be necessary.

Related: When it’s okay to spend money


Why is buying so much better?

Aside from the advantage of ownership giving you an asset — even if it’s a depreciated one — there are other monetary variables to take into account. “The annual insurance cost for a leased car is usually higher than for a purchased car,” Baumeister says. “Also, the driver of a leased car must pay personal property tax on the car. In some states, no personal property tax is owed on a car that you are purchasing.  This tax is many times only included in the fine print of a lease contract.”

No matter which option you choose, shop around. Especially with a purchase, “The exact price of the vehicle can vary greatly within your region of the country,” Love says. “The terms of a lease or terms of the note can vary greatly, too. Do some research to identify an expected price, then walk into a dealership equipped with the information.”

Read more:

If you’re looking for a car, Money Under 30 can help you at every step of the way:

Published or updated on August 20, 2014

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About Lou Carlozo

Based in Chicago, Lou Carlozo is a personal finance contributor for Reuters Money, a columnist with, and a former managing editor at AOL's Contact him with story ideas for Money Under 30 at, or follow him via LinkedIn and Twitter (@LouCarlozo63).


We invite readers to respond with questions or comments. Comments may be held for moderation and will be published according to our comment policy. Comments are the opinions of their authors; they do not represent the views or opinions of Money Under 30.

  1. CV says:

    This is COMPLETELY absurd. All the benefits of leasing aside (i.e. full warranty coverage, guaranteed end value/option to purchase) as long as you structure a lease accordingly (mileage/term/etc.) it’s almost always the lowest total cost of having a car. We the public know the car will depreciate in value…the manufacturer knows it will depreciate in value…why on earth would you want to own one? Let’s say you were going to purchase a house for $400,000…then right before closing you traveled through time to see for certain that in 2 years the market was going to crash and your house was going to be worth $200,000…when you came back, knowing what you now know, would you still purchase the house?? Of course not!! Well drop a “0” from both numbers. A car that today is worth $40,000 is going to be worth (maybe) $20,000 in 2 years…let the manufacturer/dealer take the risk, and if it happens to be a good car/good buy then you always have the option to purchase it.

  2. Steven says:

    This article is pretty absurd.

    You generally should never buy a depreciating asset, you rent them. Especially a rapidly depreciating asset like a car.

  3. Lance Greene says:

    Something seems to be missing here! Not much is mentioned to the fact that you are not just throwing your monthly payments out the window. You are still paying a nice sum of the cars value down with your monthly lease payments. I lease a 2014 Camry with a sticker price of $27,000 for 36 months with 1500 down and $264 a month with a $15,200 buyout at the end of the lease. I am close to 2 years in and for different reasons I find myself with only some 6,500 miles on the car to date. If things stay about the same I will buy the car and however long I keep it, I will be in an excellent position to make a profitable return on it. So it really comes down to negotiating a great lease on a car with excellent resale value and keeping the mileage under the allowed mileage.

  4. T says:

    My brother just leased a car and I told him that he was crazy. His argument was that after you pay off your car, the expenses and repairs come out to about the same. Then when you’re ready to sell the car, it’s worth very little. Better to drive a new one all the time, watch the miles and then have leverage with the car lease company. This article makes sense, but the comments are much better and more helpful. Any thoughts on the cost of repairs once you pay off your loan. I’m trying to talk my brother into getting another car, but I think a lease may make better sense.

  5. Jonny says:

    Sorry. This article sucks. Wear & mileage argument is all that you can come up with as cons? That is a pro for many people. It is a preference issue! As many people today refuse to buy a home but rent instead out of preference.

  6. Leo Vaserbakh says:

    I CANT believe that a person involved in finance would give SUCH HORRIBLE ADVICE. I dont even know where to begin to explain why all of this article is SO FAR FROM THE TRUTH!! Leasing is WAY better than financing in EVERY RESPECT regardless of how much mileage you drive. And the part about having an asset is so untrue. Like I really dont even know where to start to explain how wrong this is, but honestly, if you DON”T lease, then someone hasn’t informed you on the MASSIVE advantages. Here is just a couple of honestly thousands of reasons why you should ALWAYS LEASE A NEW VEHICLE:

    1. When you buy a car, you have made a decision that this will be the right car for you for the next long period of time. I have friends who have kids and are married, and if you had asked them 2 years ago, they would probably say that they would be single for the next 10 years! Every time you make a payment on your finance, you are choosing to buy the car in your driveway. If it turns out that is no longer the car for you, you can sell it, and buy another one. But almost every time, you wont be able to sell it for as much as you owe.

    2. What if in the first few years of owning the vehicle, it is involved in an accident or 2? If you have financed the vehicle, it will have just lost a lot of value, but the amount you owe for it hasn’t changed. If I offered to sell you a car that has been in an accident that normally sells for $14,000 (with the accident taken in consideration) for $20,000, you would think I am crazy and there is NO WAY IN HELL you would buy that car from me. And yet, how many people have a car in their driveway that they owe $20,000 for, and is only worth $14,000? Everytime you make a payment, you’ve made the decision to buy that car.

    3. If you are involved in an accident where the vehicle is deemed a write-off, your insurance company will give you a cheque for what the car was worth before the accident. What you owe for it has nothing to do with it. Well the same day you get that cheque, the bank that you owe the money to will want the loan payed off. So what if the cheque is for $14,000 and you still owe $20,000? Where does the $6,000 difference come from? YOUR POCKET. And what if you dont have $6,000? Well you either have to go to court, or make sure you never have an accident where the car is written off. Because the people who do have thoise types of incidents, planned for it…. Even the ones where someone hit their car that was parkeed while they are asleep. But they went to bed knowing that they may wake up to a bank looking for $20,000 while they hold a cheque in their hands for $14,000. Leases come with GAP protection, so it doesnt matter what you owe for the vehicle, your insurance and the leasing company will sort it out. You walk away CLEAN!

    4. In addition to the above point, there are the people who say that if you drive MANY MILES/KMS that you shouldn’t lease. So lets say you drive 100,000 miles a year. After years you would have 200,000 miles. So what if you wrote off your car then? You would owe say $20,000 for it, but your insurance company would say that the car is only worth $2000 for example, with that type of mileage. If you had leased, at least if in the (lets say) 4 years that you were in your lease, if an accident happened, you wouldn’t have to worry about the mileage. And then at the end of the lease you would have to buy the car because you have too much mileage to simply return the car. And then you would ask, why am I buying a car for $10,000 that has 400,000 miles on it? HOW IS THAT ANY WORSE THAN BUYING IT FROM DAY ONE AND THEN PUTTING 400,000 MILES ON IT? If you add up all your lease payments, and the cost of buying the car in the end, it will be very close (but probably a little more) to having just bought it in the first place.

    5. Again to my last point, I had mentioned that leasing and then buying out the car at the end, would like ly cost a little more than if you had just financed the car from the start. So why do it? Well what about the $150 per month for the 4 year lease that you kept in your pocket because the lease payment is lower? Is that not worth anything? Like if you financed, you have $150 bucks less in your pocket. So you go to the store and buy things with a credit card. How much does that cost in interest? And we all know that money goes down in value as time passes. My dad said in the 70s you could buy a new car for $2000, and today you can hardly get anything for that. So wouldn’t you rather pay a smaller payment now, and pay more later? Its going to cost roughly the same, but the payments you make 5 years from now will be with money that is worth less than todays money. By that time, minimum wage will be higher. Maybe you will be earning more money by then. You had better be, because the cost of goods has gone up. Except your car, because you already knew 5 years ago how much your payment would be.

    There is honestly a thousand more reason I could give, and if you would like to hear some more, give me a call. (705) 492-1919, or email me at


  7. wewa says:

    This article is fine.
    Just the title needs to be changed.
    “Here are the many benefits to leasing a car.”

  8. fred says:

    The price of repairs and maintenance on European cars in particular is out of sight. A lease allows you to drive a car which is always under warranty to reduce the risk of exposure to these high cost repairs. You could purchase a car and add on an extended warranty which is not a bad option. Of course, there is a lot of time spent as well in bringing a car in for repairs.

  9. Chris says:

    This article is very one sided, and not entirely accurate. Accords with a price like that can be leased around here for $199/month with no money down. Also maintenance can add up on older cars, especially with tires and everything else that can break down.

    • I’m a management accountant and I wholeheartedly concur that this article is a bit one-sided.

      It’s entirely true that in the Totals Asset column, as the article states, one is better off keeping the car for a long time and buying it. However, low monthly payments are extremely useful. Bear in mind that loans do pay off debt (which is good), but it’s also forced savings — which is a colossal restriction in other ways.

      In addition, with a lease, after 3 years, you can walk away or keep. It’s an option. You don’t worry about what if you got a bad car, one that constantly has problems, or heck — one that just no longer fits your lifestyle.

      Net-net, from certain angles leases are not optimal. But far from all angles.

  10. Joseph Rasero says:

    How much do you drive and what does driving mean to you? Is driving A to B no nonsense or is driving a luxury. Yes leasing will cost more compared to buying a used car or buying new but like many posters have stated there are benefits of leasing but first ask yourself how much do you drive, how long do you think you need a car, and what condition do you keep your cars in?

    If you drive 15k miles a year or less leasing might be good for you. If you plan or can afford payments for 36 or less months than leasing might be good. If you garage park and or keep your car in perfect shape leasing might be good for you.

    1st great thing about leasing is at the end of the lease you have the ability to simply turn in the car with no problems unless there is excess miles, wear and tear, and normally there is a turnin fee.

    2nd. Warranty and sometimes even maintance is covered during the lease.

    3rd. Lower monthly payments compared to buying new with less if not no money down

    4th. Equity can happen if the car is in great shape aND less miles are driven that paid for

    5th. Residual value or buyback price can offer a great deal on a car that you know 100 percent of the cars history. My lease of a 2016 acura rdx base awd 15k yearly 36 months has a buyback $23,300. A three year old 2013 acura rdx awd base goes for $29.500,

    Now if I bought a used 2013 acura base to begin with you save thousands but you have a used car with a limited warranty. Repair costs and car value come into play with a used car. If I buy a 2013 rdx base with 30k miles on it I will probably receive 1 year left of the warranty since the car was made in 2012. Also let’s say I finance it for 48 months. I put 10k a year. At the end or the financing the car would have at least 70k

  11. K-man says:

    This article makes some good points about the advantages of buying, but really disregards many of the advantages of leasing.

    First, there’s typically the option to buy at the end of a lease, which is a valuable choice to have. If the car is still worth $15,000, but you have the option to buy at $12,000, obviously you aren’t going to just trade it in if the dealer isn’t giving you anything. Second, if you do assume that someone trades in the car at the end and leases a new vehicle again, presumably they save a lot of money and inconvenience dealing with maintenance.

  12. Enzo says:

    When you buy your car and finished making payments and are stuck with no warranty, then what? Your transmission goes out and you are stuck with a $5k repair bill like the last car I owned. During my last lease, the car was in a wreck twice and both times not my fault. Had I owned that car, good luck trying to sell it with two accidents showing up on Carfax. With a lease, I just turned it in. If you are the kind of person that doesn’t mind driving and old car with no warranty, then buy. Otherwise, leasing offers a lot of benefits. You can still purchase the car at lease end and a short lease will really let you find out if your really like the vehicle or not. Also when you lease, you don’t pay all the sales tax up front, you just pay a portion each month. Lease all the way.

  13. Matt says:

    This article makes a number of assumptions which are entirely NOT TRUE. Leasing DOES make sense in a wide number of situations and the old adage that you are left with nothing at the end of the lease is not entirely true.

    + In the “numbers” example above the author neglected to tell you that you absolutely MUST negotiate your purchase price exactly the same way with a lease as you would a purchase. The lease rates are based off of MSRP usually and will be lower based on the price you actually pay. NEVER PAY MSRP.

    + At the end of your lease you do have the option to buy the car at the pre-set residual value, usually about 50%-65% of purchase price. You have effectively paid for the depreciation up to this point. If the car has depreciated more than estimated you can walk away without eating further depreciation. Also, if the car has depreciated less than expected (say you drove much less than the mileage you paid for) it could be worth more than the residual. You can sell the car yourself instead of turning it in and make some money or purchase at a nice discount if you want to keep it for longer.

    Leasing vs Buying isn’t a simple choice. There are a ton of factors at play and those individual factors will determine what makes the most sense for you.

  14. LikeToDriveFastCars says:

    How about leasing a BMW, Mercedes, or Audi. The cars are notorious for failing after there warranty. Most say that is $1000 visit for any work that has to be done on the car. I think at this point if you like to drive “nice” cars then it may make sense to lease.

  15. Jenn says:

    In hindsight for me leasing would have been a better option. I bought a used car one year ago and was thankfully able to pay it off quickly. I only drove it on the weekenda and on long vacatiob trips adding only 5k miles. The challenge is I was relocated to a major city cross country and now have to sell my car after 1 year.

    Returning to the dealer I would lose over 30% of the purchase price simply because that was their markup margin and taxes. Now I am trying to sell it at Kelly Blue book for a 20% loss.

  16. Ahmed says:

    But if you prefer to drive luxury cars, it is much better to lease, because you save on the high maintenance cost that will start after the third year, also you save on the taxes, when you lease you pay taxes only on the amount you leased (%45) instead of accruing taxes on the full price even if you decide to sell it before paying it off.
    Plus, leasing deals are much more competitive than purchasing deals with cars besides Honda . So I agree that lease could be better for some, but those have to be committed to keep driving the same economy car for a long time, something not common among Americans.
    Either way, car dealership are the scum of the society when it comes to honesty and truthfulness, so need to be careful either way..

  17. Dan says:

    Hi Lou,

    Would you recommend this advice for buying a house vs renting as well?

    More importantly, many of the numbers in your example don’t line up. The down payments don’t match up. You mention a 5 year loan but then calculate a 4 year loan.

    Most importantly, you ignore repair and maintenance which Kelly Blue Book puts at ~$4000 for 5 years so probably almost $5000 for 6 years which reduces your savings by quite a bit.

    • David Weliver says:

      Hi Dan,

      There were a couple typos in the numbers when first published that have been corrected. The example uses a $1,999 down payment for both lease and purchase and uses a 4 year (48) month loan. The bottom line savings (buy vs lease) is still around $6k. Even with a liberal allowance for $5k in maintenance over six years, you still come out ahead. It *is* close when you factor in maintenance — but the example we used is also a fairly competitive lease deal.

      To answer your first question: no. The logic here is only about cars — renting vs buying a home is a totally different animal in which both have advantages and disadvantages depending on your circumstances. Often, it can be smart to rent:

      Thanks for commenting.

      • Travis says:

        The only thing I don’t understand is why you would use 6 years of leasing vs. 4 years of paying off a car. If you want a real apples-to-apples you should have the person be paying on a 6-year loan. The monthly payments are lower, but they accrue more interest. When you factor that reality into the equation buying doesn’t come out that far ahead, if at all after maintenance costs. Especially considering certain factors regarding resale value (after accidents, what have you), leasing can be a much more attractive offer than buying. Cars are rapidly depreciating assets. Being able to say you own a car outright after 6 years that’s worth 40% of what you paid for it doesn’t do anything for you. Especially because dealers will NOT give you that 40% value. They will haggle you down from they number so that THEY can sell it for 40%. So really, at the end of paying off a car, you have a car that has depreciated 60%, plus another 10% or so once the dealer rips you off on the backend. Leasing presents many more options to the smart shopper to actually fairly make money back instead of being pigeonholed into a bad car.

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