What are differences between buying and leasing a car?

There are both obvious differences and subtle variances between buying and leasing a car. Here’s what to know.

The obvious

For starters, at the end of a loan (purchase) term, you own the vehicle as long as all payments have been made. With a lease, once the term (usually 2 to 4 years) is up, you return the vehicle to the dealer and do not own it. With some leases there may be a purchase option to buy the vehicle but terms and conditions can vary widely in this scenario.

Other differences betweening buying and leasing include:

Upfront costs

With some leases, you may be required to pay upfront costs that may not be applicable to purchases. These fees can include security deposits, registration fees, processing fees and more.

Restrictions

Many leased vehicles have mileage restrictions. That is, if you put more than a specified amount of miles (e.g. 12,000 miles) on the vehicle over a specified amount of time (e.g. 12 months), you will have to pay extra fees (usually in the form of a per-mile overage fee).

Insurance costs

In some leasing arrangements, you may be required to carry a higher level of auto insurance than what you currently have. This can vary depending on the type of vehicle and driver but is nonetheless something to keep in mind when considering a lease.

Termination fees

If you attempt to get out of an auto lease early – before the agreed term expires – you may be required to pay early termination penalties or fees.

See also: Considerations when leasing a car