If there’s one thing I’ll never get used to when it comes to living in America (even being native-born as I am!), it’s the sheer number of choices we have available to us.

It’s a blessing—don't get me wrong.

However, while the choice between yogurts at the grocery store is relatively easy, other choices can be much more complicated. For instance, when it comes time to buy a car—should I buy new (with an auto loan), buy used (for cash), or lease a car instead? Luckily, there’s a process you can use to make even this complicated choice feel much easier!

Owning vs. leasing: What’s the difference?

A big source of confusion for many shoppers is the difference between owning and leasing a car.

  • Owning: The car can be new or used, but you’re taking out a loan or paying cash to own the car outright.
  • Leasing: You’re (essentially) renting the vehicle and must return it at the end of the lease period—although it’s common to have an "option to buy" included in your lease package.

Of course, if possible, the easiest way to get yourself into a new or used vehicle is always to pay cash—if you can swing it—so you own the vehicle outright right away. But most of us can't afford to do this, which is where the dilemma between owning and leasing comes into play.

Pros: Owning and leasing

Let's start by taking a look at the pros of owning and the pros of leasing a vehicle.

Pros of owning:

  • You immediately take ownership of the vehicle.
  • You can often get more favorable interest rates.
  • You can keep the vehicle until you decide to sell it or trade it in.
  • You retain equity in the vehicle as it depreciates.
  • You can drive an unlimited number of miles without financial penalty.
  • You don't have to worry about every little ding and scratch.
  • You can customize your vehicle as you see fit.

Pros of leasing:

  • You pay less monthly for a lease than for an auto loan.
  • At the end of the lease period, you can turn the vehicle in, no strings attached.
  • You don't have to worry about how well your vehicle retains its resale value.
  • You have a lower financial burden overall so long as you complete your lease term in full.
  • You don't bear the costs of pricey repairs as your car ages.

Cons: Owning and leasing

Now that we've examined the pros, let's take a look at the cons of owning and the cons of leasing.

Cons of owning:

  • Any wear and tear on the car will lower its resale value, as will higher mileage.
  • You have to oversee selling or trading in the vehicle when you’re ready to get rid of it.
  • You’ll pay more per month for an auto loan than you would for a lease agreement.
  • You’ll have to bear the drop in resale value after you drive off the lot (for a new car).

Cons of leasing:

  • You can't make any modifications (or if you make modifications, you must remove them before turning the car back in).
  • If you want to get out of your lease agreement early, you’ll face stiff penalties.
  • If you want to purchase the car after the lease period ends, you’ll have to finance a higher remaining balance.
  • You’ll be responsible for returning the car in the same condition as you received it (which means repairing even minor scratches and dings out of your own pocket).
  • You have no equity with which to purchase a new vehicle.

How to choose: Owning vs. leasing

As with all car buying decisions, your choice should reflect your priorities, your budget and your personal preferences.

For example, if you really enjoy having the latest model car, and you don't tend to keep your cars longer than a few years, leasing may be the perfect choice for you. However, if you value building equity and tend to drive your cars until they drop, owning is a much more sensible choice for you.

Calculator: Use this fabulous loan vs. lease calculator from Bankrate to calculate the most financially advantageous choice for you.

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