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Auto loans

Should I buy or lease? What's the difference?

You should carefully compare the costs of leasing and buying. Leasing is almost always more expensive in the long term. Usually, it takes longer to get full ownership of a car through a leasing agreement than by getting a loan to buy the car. If you buy a car with a loan, it might take five years to pay off. However, if you decide to purchase a leased car at the end of the lease, it might take seven or eight years to pay for the car.

Paying for a purchase after a lease takes longer because leases typically last three years, but then you have to make a very large payment – called a balloon payment – at the end of those three years if you want to buy the car under the purchase option. You may have to take out a four- or five- year loan to make that payment, which makes the total time until you’re finished paying for the car seven or eight years.

If you choose to lease a car and then decide to return it, you will be responsible for any excess wear and tear and any excess mileage charges. If you have to return a leased car early, you may be charged thousands of dollars in unpaid lease fees.

Also, bear in mind that if you make a habit of always turning in your leased car at the end of the lease and then leasing another car, you are putting yourself in the position of paying lease payments into the indefinite future. This will nearly always be more expensive than taking out a loan to buy a car. If you buy a car, you will pay off the loan at the end of the loan term (typically four to five years), and then you will own the car outright. Today, many new cars last more than 10 years before they need to be replaced.

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