Note (September 2026): An earlier version said lease companies cover repairs, servicing and maintenance. A standard lease does not; the lessee must service the car and pays for excess wear unless a maintenance package is bought, and the text below has been corrected.
Buying or leasing a new car comes down to ownership versus monthly cost. Buying (with cash or a loan) means you own the car and can keep or sell it. Leasing usually means lower monthly payments, according to the US Federal Trade Commission, but you return the car at the end, stay within a mileage limit and pay for excess wear.
Key Takeaways
- Buying costs more per month but leaves you with an asset; leasing costs less per month but you own nothing unless you buy the car at the end.
- Standard leases cap mileage; the FTC says the annual limit in most standard leases is 15,000 miles or less, and extra miles are charged at lease end.
- A lease does not normally include servicing: the lessee must maintain the car to the manufacturer’s schedule unless a maintenance package is added.
- A used car avoids the steepest early depreciation, but check its history, mileage and service records first.
- Before signing anything, check your credit report, get loan pre-approval and read every term of the lease or loan.
When choosing your next car, it can be difficult to make decisions on a number of levels. What make and model do you want? Should you go directly to the dealer for a brand-new car? What about a second-hand car? Or, is the best option to lease a car? All of these questions then have numerous follow-up questions you may then ask yourself.
This guide compares the three main routes (buying new, buying used and leasing) on cost, ownership, depreciation and the contract terms worth checking before you sign.
Make and Model
When choosing the make and model of the car you are going to buy, there can be a number of factors that you might have to consider before making your choice. You will need to ensure that the car you are buying is big enough for your needs, with enough trunk space. You will also need to consider the accessibility needs of anyone who will be regularly using the vehicle. This could include ensuring that the car is low or high enough for users of the vehicle to get into and out of.
You will also need to consider the fuel type of the vehicles that you are considering. Fuel prices rise and fall, so fuel economy (or energy use per mile for an electric car) remains an important part of the running-cost comparison. The make and model of the car you buy can also affect the cost of the insurance, so it is worth checking which cars would be the most expensive and cheapest to insure before choosing the car.
It may be that you have a preferred make and model for your next vehicle, and the above considerations are unnecessary. If you do not and do not know where to start even with those considerations, we recommend that you go and visit some car lots to see some vehicles in person. This can be helpful in narrowing down your list of potential vehicles, as pictures and specifications viewed online are not always helpful in making the decision.
Brand-New Cars
Buying a brand-new car can be exciting, knowing that you are the only owner and you do not have to be concerned about the way the car has previously been driven. You will know that every check and service has been completed from when the car was purchased, and you will have the full manufacturer’s warranty in case of any issues with the vehicle.
Brand-new cars can, in some cases, be cheaper to insure, and you can experience cheaper running costs in comparison to older models of the same car. When looking to finance a new car, there are a number of options available, and a lot of buyers choose to take out a loan. A variety of financial institutions can offer competitive car loans to help make the purchase of a new vehicle more accessible. However, you should also consider the depreciation in value of a brand-new vehicle as soon as it is driven off the lot. This is the concern of a high number of car owners and a reason why some people choose not to purchase a brand-new vehicle.
Delivery times for new cars also vary. Between 2020 and 2023 a worldwide semiconductor shortage forced automakers to cut production and delay deliveries; by 2023 the shortage had mostly subsided and global car production was recovering. Wait times still differ by model and market, so ask the dealer for a written delivery estimate before you pay a deposit.
Second-Hand Cars
Second-hand cars can be preferable to many drivers due to the lower price tag attached to a second-hand car. Taking advantage of the depreciation in value of new cars, you can get very good deals for used cars that have been very rarely driven.
It is beneficial when looking at used cars to check the age and distance driven by the car when deciding which to buy. If you are looking at used cars that have been used by businesses as office cars or that have previously had an owner that only drove close to home, you can get a fantastic deal for your money.
We would always be wary of cars that have changed owners multiple times in a short period of time, as this could indicate an issue with the vehicle. Also, cars that are newer with a high distance driven are vehicles we would think very carefully about. The further and more often that a car has been driven, the more likely it is that there will need to be, or have been, repairs made. While incidental repairs are expected on used cars, significant repairs increase the likelihood of future problems with the vehicle.
We would also recommend that you always check the service history of the car you are looking to buy. Confirm that scheduled maintenance was done on time and is backed by receipts or stamped service records.
Lease Cars
Leasing is a common way to drive a brand-new car for a lower monthly payment. According to the FTC, monthly lease payments are usually lower than monthly finance payments for the same vehicle, but when you lease you pay for the right to use the car for an agreed time and number of miles rather than owning it. A standard lease does not remove the cost of servicing: the FTC says lessees must service the car according to the manufacturer’s recommendations and are responsible for excess wear and damage. Some leases bundle maintenance for an extra charge (in the UK this is often called contract hire). Lower monthly payments do not always mean a lower total cost, because at the end of a lease you have no car to keep or sell unless you buy it, so compare the total cost over the same period, for example with payments on a New Ford Ranger becoming more affordable with the right lease contract.
There are several types of lease contracts available, and you can choose the right fit for you. This can include leasing the vehicle from brand-new for a fixed period of time with a fixed monthly payment. At the end of this monthly term, you can have a lease that will mean you trade that car in for another brand-new car, and this does not have to be the same make and model as the previous car.
Alternatively, some agreements end with an optional balloon payment that makes you the owner. In the UK and Ireland this is usually a personal contract purchase (PCP), which is a finance agreement rather than a pure lease. A standard lease may also let you buy the car at the end, at a price usually agreed when the lease is signed. Because the large final payment is deferred, monthly payments on these agreements are usually lower than on a conventional loan for the same car, but at the end you must pay the balloon, refinance it or hand the car back. Some drivers set aside the monthly difference toward the balloon payment, though nothing guarantees those savings will cover it. You will still have been the only owner of the car, but the monthly cost of purchasing that car could be more affordable.
You should always check the affordability of any financial plan that you take out to buy a vehicle, and finance or leasing a car will be subject to the relevant financial checks.
Buying New vs Buying Used vs Leasing: Comparison Table
| Factor | Buy new | Buy used | Lease new |
|---|---|---|---|
| Ownership | You own it (a lender holds an interest until any loan is repaid) | You own it | The leasing company owns it; you return it unless the agreement lets you buy it |
| Monthly payment | Highest | Lower, because the price is lower | Usually lower than finance payments on the same car (FTC) |
| Depreciation | You absorb the early drop in value | The first owner has absorbed part of it | Built into the payment through the car’s estimated residual value |
| Mileage | Unlimited | Unlimited | Capped; extra miles are charged at the end |
| Maintenance | Your cost, with the manufacturer’s warranty for covered defects | Your cost; warranty may have expired | Your responsibility unless a maintenance package is included |
| Wear and damage | Affects resale value only | Affects resale value only | Excess wear, damage and missing equipment are charged at return (FTC) |
| Ending early | Sell or trade in at any time | Sell or trade in at any time | May carry a substantial early termination charge (FTC) |
How Does a Car Lease Work?
A car lease is a contract to use a vehicle for a fixed term, usually 2, 3 or 4 years, in return for regular payments. At the end of the term the car is returned to the leasing company or bought for its residual value. The end-of-lease price is usually agreed when the lease is signed.
Lease terms to understand before you sign
- Residual value: the car’s estimated value at the end of the lease, which is usually the price at which you can buy it.
- Money factor: the finance charge in a lease, used in the payment calculation in place of an APR.
- Mileage limit: a common figure for passenger cars is 10,000 miles a year, though limits from 5,000 to 25,000 miles a year can be arranged. The FTC says the annual limit in most standard leases is 15,000 miles or less.
- Excess wear and damage: the lessee pays for damage beyond normal wear and for any missing equipment when the car is returned.
- Early termination charge: leaving a lease early can trigger a substantial charge, so choose a term you can complete.
What are your options at the end of a lease?
At the end of a lease you return the car, or buy it if the agreement allows. Under a UK or Irish personal contract purchase (PCP), the agreement usually runs 24 to 48 months and the customer can pay the final balloon payment to own the car or return it instead. The balloon is set at the start, based on the finance company’s Guaranteed Minimum Future Value (GMFV) for the car.
Who Should Buy and Who Should Lease?
Buying tends to suit drivers who cover high mileage, keep cars for many years, want to modify the car, or want an asset with no payments once a loan is repaid.
Leasing tends to suit drivers who want a new car every few years, drive predictable distances within the mileage cap, keep the car in good condition and value a lower monthly payment over ownership.
A used car tends to suit buyers who want a lower purchase price and are willing to check a car’s history carefully. A check using the vehicle identification number, explained in our guide on how to use a VIN number to check a car, helps confirm what you are buying.
Checklist Before You Sign a Car Loan or Lease
- Get a copy of your credit report (in the US, from AnnualCreditReport.com) and correct any errors; our explainer on what a credit score is covers why it matters for borrowing.
- Get pre-approved for a loan so you know the APR, the length of the loan in months and the maximum you can borrow before you visit a dealer. Our guide to applying for a car loan walks through the process.
- Be cautious with very long loans. The FTC notes that many creditors offer longer-term loans such as 72 or 84 months, which lower the monthly payment but increase the overall cost.
- Research your trade-in’s value with guides such as Kelley Blue Book, Edmunds or NADA Guides. If you owe more than the car is worth (negative equity), ask how that amount will affect the new loan or lease.
- For a lease, read the mileage limit, excess-wear rules, early termination charge and any purchase option before signing.
- Get insurance quotes for the exact model first; our article on switching car insurance without losing benefits helps when comparing policies.
For running costs after you take delivery, see our car owner’s guide to buying, driving, maintaining and insuring a car.
Frequently Asked Questions
Is it cheaper to lease or buy a new car?
Leasing is usually cheaper per month, while buying leaves you with a car you can keep or sell. According to the FTC, monthly lease payments are usually lower than monthly finance payments for the same car, but at the end of a lease you have no car unless you buy it, so compare total cost over the same period.
Does a car lease include maintenance?
A standard car lease does not include maintenance. The FTC says lessees must service the car according to the manufacturer’s recommendations. Some leases add maintenance for an extra cost; in the UK a lease with maintenance is often called contract hire.
What happens if I drive over the lease mileage limit?
Driving over the lease mileage limit leads to additional charges when the car is returned. The FTC says the annual limit in most standard leases is 15,000 miles or less, so estimate your yearly driving before choosing a limit.
Can I buy my car at the end of a lease?
Many leases let you buy the car at the end for its residual value, a price usually agreed when the lease is signed. If the agreement has no purchase option, you must return the car.
Can I end a car lease early?
A car lease can often be ended early, but the FTC warns that lease agreements may impose a substantial early termination charge. Read that clause before signing.
