Buying a new car is far more expensive than it was just a few years ago. In June 2024, the average transaction price for a new car was $48,644, compared with $38,530 four years earlier, according to automotive-research company Kelley Blue Book.
By comparison, the average payment for a new lease was $595 in early 2024, according to credit-reporting company Experian. And leasing is on the rise this year, with about 24 percent of new cars leased in early 2024, compared with 19 percent in early 2023.
On its face, leasing looks more affordable than buying because the monthly payments are usually lower. Let’s say, for example, you want to drive a Honda CR-V, the most-leased car in the first quarter of 2024, according to Experian. With a sticker price near $33,000, the lease payment would be about $500 for three years. By comparison, if you get a 60-month loan to purchase the same car, with no down payment and a 7.84 percent interest rate, your monthly payment would be more than $700.
Yet, in the long term, leasing is more expensive than buying for one simple reason: As long as you lease, your car payments never end. On top of that, leasing is mostly limited to new (or sometimes gently used) cars, which aren’t exactly budget friendly.
In 2023, drivers had only 10 new-car models to choose from that were priced at $25,000 or less. Plus, with a lease, you have to pay for excess wear and tear before returning the car and pay a disposition fee (which covers the cost of reconditioning the car) of about $350. If you drive more than a certain number of miles per year set by the dealership—often 10,000 to 15,000—you may also face penalties of 15 to 30 cents per mile above the limit.
When is leasing a better choice? If you love to drive the latest car models and know you’ll be trading up every few years, leasing is usually the way to go—as long as you’re okay with a never-ending monthly payment.
Additionally, if you’re in the market for an all-electric vehicle or a plug-in hybrid, you may want to lease. Leased vehicles have broader eligibility than purchases for a federal clean-vehicle tax credit (up to $7,500), since leased EVs and plug-in hybrids are classified as commercial vehicles. This helps them qualify without the income, pricing or sourcing questions that arise if you buy the car instead.
The best way to make a car purchase more affordable is to get a used car. For example, you can buy a new Toyota RAV4—which was recently the most popular SUV, according to Kelley Blue Book—starting at about $28,600. If you buy a used 2020 model instead, you’ll pay about $21,700.
To bring down the purchase price even further—and to get better fuel economy, reducing how much you pay for gas—go for a smaller car. Some of the safest used cars are small, according to the Insurance Institute for Highway Safety, including Toyota Corollas and Honda Civics.
