Buying vs. Leasing a Car: What You Should Know
Buying a new car has become significantly more expensive in recent years. In June 2024, the average transaction price for a new car reached $48,644, a sharp increase from $38,530 four years ago, according to data from Kelley Blue Book. Additionally, insights from Edmunds reveal that the average new-car loan now carries a 7.3% interest rate, a 69-month payment term (nearly six years), and an average monthly payment of approximately $740.
In contrast, at the start of 2024, the average payment for a new lease was only $595. The trend toward leasing is also increasing, with around 24% of new cars leased in early 2024, compared to 19% in the same period the previous year.
Weighing the Costs of Buying vs. Leasing a Car
At first glance, leasing may appear more affordable due to lower monthly payments. For instance, if you’re interested in a Honda CR-V, the most-leased car in early 2024, with a sticker price near $33,000, your lease payment could be approximately $500 for three years. However, financing the same vehicle with a 60-month loan at a 7.84% interest rate and no down payment could cost you over $700 per month.
Despite these initial savings, leasing generally becomes more expensive over a longer term because you never truly stop making payments. Furthermore, leasing options are typically limited to new or nearly new vehicles, which can be prohibitively expensive. For instance, in 2023, only 10 new car models were available for less than $25,000.
Moreover, at the end of a lease, you may face additional costs for excess wear and tear, along with a disposition fee around $350. If you exceed the mileage limits set by the dealership—often ranging from 10,000 to 15,000 miles per year—you may incur penalties of 15 to 30 cents per mile over the limit.
When is Leasing a Better Choice Than Buying?
If you prefer to drive the latest models and anticipate trading cars every few years, leasing could be your best option—provided you’re comfortable with ongoing monthly payments. Additionally, if you’re exploring options for an electric vehicle (EV) or plug-in hybrid, leasing might be particularly advantageous. Leased cars often qualify for a federal clean-vehicle tax credit (up to $7,500), bypassing some of the income and pricing limitations associated with purchasing a vehicle.
How to Lower the Purchase Price of a Car
For those looking to make a car purchase more affordable, opting for a used vehicle can be a smart move. For example, while a new Toyota RAV4 typically starts at around $28,600, a used model from 2020 could be available for approximately $21,700. To further decrease costs and improve fuel efficiency, consider smaller cars, which are not only budget-friendly but also tend to be safer according to the Insurance Institute for Highway Safety (IIHS), featuring models like the Toyota Corolla and Honda Civic.
Finally, if you’re planning to secure a loan, it’s wise to shop around among local banks and credit unions, which often provide more competitive interest rates than dealerships.
This article is provided by iBestTravel, a source committed to delivering trustworthy financial insights to help you save and earn more.
