Financial face-to-face: renting a car or buying a car: what should you do?


Hello and welcome to Financial Face-off, a MarketWatch column where we help you weigh your financial decisions. Our columnist will give her verdict, then you can tell us in the comments what you think.

When you buy a car, you typically pay 20% cash up front, then pay the balance in monthly installments (with interest, of course). With leasing, you may need to make a down payment depending on your credit score, and then you’ll make monthly payments for the duration of the lease, usually two to three years.

Leasing or buying is a classic financial choice, but the COVID-19 pandemic has brought with it some unusual new wrinkles. It’s an extremely difficult time to buy a car. Inventories are low due to the global shortage of microchips, and prices for new and used models are at record highs.

The average new car transaction price was $47,077 in January 2022, compared to an average of $43,332 in 2021. The average used car price in 2021 was $26,910, compared to $22,337 $ in 2020.

“New car prices are through the roof, used car prices are through the roof.”

— Matt Degen, Editor of Kelley Blue Book

Translation: Like some homes, cars are now selling above asking price.

“I’ve been doing this for over a decade and I’ve never seen what we’re going through. New car prices are skyrocketing, used car prices are skyrocketing,” said Kelley Blue Book editor Matt Degen.

Prices are so high that some experts say it’s best to wait as long as possible before getting a new car.

But if your old clunker just quit or your new job means you have to drive more, here’s how to decide whether to lease or buy, according to car-buying experts Kelley Blue Book and and more than one dozen financial advisors. with the National Association of Personal Financial Advisors.

why is it important

Get ready for sticker clash. The average monthly loan payment on a new car hit an all-time high of $636 in the third quarter of 2021, according to credit reporting firm Experian EXPN,
and the average monthly lease payment was $506.

The most popular American vehicle, the Ford F,
The F-150 pickup, had an average monthly lease payment of $542 or an average monthly loan payment of $768 in the third quarter of 2021, Experian found.

It makes renting seem cheaper – and it is, if you only look at the monthly payment. But if you buy a car and keep it long enough to pay off the loan, the purchase will cost you less than the long-term lease.

“It’s the cheapest over the life of the car, especially if you’re going to own it for seven to ten years. The math will work in your favor and it will be cheaper than renting over and over again,” said Ivan Drury, chief information officer at

The verdict

TO BUY. Yes, even at these prices.

My reasons

Buyers can build capital. After you pay off your loan, you own the car free and clear and it becomes an asset you can sell or use to cover the cost of your next car, said Degen, who paid all the money for her own personal car, who is now 20 years old.

The purchase is best for someone who wants flexibility with annual mileage and intends to keep the vehicle longer than the auto loan term, Scott Buttfield, certified financial planner at Buttfield & Associates told Red Bank, New Jersey.

“The answer to that question is the universal answer to most financial planning questions: It depends,” Buttfield said.

Leasing is good for people who won’t put more miles on the car each year than the cap allows (see below), who want a lower monthly payment, who want a new car regularly, and who, generally take good care of a car, Buttfield added, because leases require cars to be returned in good condition.

For someone who is going to own a car for more than six years, buying is the best option. But if you need a new car every two or three years, leasing is better.

Money is relatively cheap to borrow right now for people with good credit, which can make buying more attractive. However, if you have bad credit, it can negatively affect the type of lease you can get, including the amount of your down payment and monthly payments.

Is my verdict the best for you?

“The math is quite simple: owning a car long term and following the maintenance plan is cheaper than leasing. The real question is, “What kind of car user am I?” says Josh Chamberlain, Certified Financial Planner at Chamberlain Financial Advisors in Decatur, Georgia.

And above all, how much do you drive in a year? This is important because leases have limits on how many miles you are allowed to put on a car each year (usually between 10,000 and 15,000 miles). If you go over that, you have to pay a penalty per mile. These can really add up.

“If you have commitment issues in any aspect of your life, leasing is right for you.”

— Ivan Drury, Chief Information Officer at

Are you the kind of car owner who likes to customize their vehicle with giant rims and a speaker system? Leasing is not a good option for you, as you cannot make modifications to the leased vehicles.

Other key questions: How important is it to you to have a lower monthly payment? Leasing allows this. How important is it to you to drive a nice new car? Leasing is a way to get an entry-level luxury vehicle for a relatively low monthly cost. And you can upgrade every few years.

“If you have commitment issues in any aspect of your life, renting is right for you,” Drury said.

Is my verdict the best for you? Let us know in the comments which option should win in this financial head-to-head. If you have ideas for future Financial Face-off sections, send me an e-mail.


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