By: Lim Chan

July 2, 2025

There’s a common saying that brand-new cars lose 10% or more of their value the moment they leave the dealer’s lot, and up to 20% within the first year of ownership. Car depreciation plays a significant role in a person’s long-term wealth. Could leasing a vehicle be a wiser choice than buying one? Let’s examine the advantages and disadvantages of both leasing and purchasing a car, followed by a comparative analysis of sample leasing and financing deals.

Advantages of Purchasing a Car

No Mileage Restrictions: You’re free to take long road trips and drive as much as you like, without worrying about mileage caps.

Ownership and Equity: You can paint or customize the car however you want. You have the freedom to sell or trade it in at any time, provided you’ve kept up with monthly payments or fully repaid the loan. Each payment helps you build equity.

No “Excessive Wear and Tear” Fees: There are no penalties for wear and tear, which is often the case with leased vehicles.

Disadvantages of Purchasing a Car

Higher Monthly Payments: Loan payments are usually higher than lease payments.

Depreciation: New cars can lose 10% or more of their value the moment they leave the dealership, and up to 20% within the first year.

Maintenance and Repair Costs: Once the manufacturer’s warranty expires, you’re responsible for all repair and maintenance expenses. As the vehicle ages, these costs typically increase.

Advantages of Leasing a Car

Lower Monthly Payments: Lease payments are generally lower than loan payments.

Access to the Latest Technology: Lease terms typically last 2 to 4 years, allowing you to drive vehicles with the newest features more frequently.

Reduced Maintenance Costs: Leased vehicles are often covered by the manufacturer’s warranty for most, if not all, of the lease term, reducing or eliminating maintenance expenses.

No Resale Hassle: At the end of the lease, you simply pay a pre-agreed disposition fee and return the vehicle, avoiding the stress of selling or negotiating a resale price.

Disadvantages of Leasing a Car

No Ownership or Equity: Leasing is like renting. Continuous leasing means ongoing payments with no ownership or asset to show for it. Customizing the car, like painting or upgrading, is generally not allowed.

Mileage Restrictions: Most leases come with annual mileage limits and exceeding them can lead to hefty fees.

Early Termination Penalties: Ending a lease early usually incurs a substantial fee.

Excess Wear and Tear Fees: The dealer may charge additional fees for dents, scratches, or other cosmetic issues.

Extra Fees: Leases often include additional charges such as an acquisition fee at the beginning and a disposition fee at the end, charges not typically associated with financing.

Leasing and financing sample outlay comparison

To illustrate the cost differences, this example compares leasing and financing a popular SUV with an out-the-door price of $29,471.00. The lease term is 36 months with a 10,000-mile annual limit and an overage charge of $0.15 per mile. The disposition fee is $350.00, and the acquisition fee is included in the amount due at signing. The total due at signing is $3,303.00, with a monthly payment of $380.43. For the financing option, the down payment is $3,019.00, with an APR of 5.9% over a 72-month term, resulting in a monthly payment of $464.43.

Let’s assume two consecutive 3-year leases with identical terms:

Two due-at-signing payments: $3,303.00*2=$6,606.00

Two disposition fees: $350.00*2=$700.00

Monthly lease payments: $380.43*72 months=$27,390.96

Total Lease Cost: $6,606.00+$700.00+$27,390.96=$34,696.96

72-Month Financing Option:

Down payment: $3,019.00

Monthly payments: $464.43*72 months=$33,438.96

Total Financing Cost: $3,019.00+$33,438.96=$36,457.96

Final Thoughts

At first glance, leasing and financing may appear comparable; however, after two consecutive 3-year leases, you walk away with no assets. In contrast, after 72 months of financing, you fully own the vehicle. Assuming it retains 40% of its original value, that equates to approximately $11,788.40 in retained equity.

Does that mean financing is always the better option? Not always. If having access to the latest safety and technology features is a priority, leasing may be the smarter choice.