Buying a new car is far more expensive than it was just a few years ago. In August 2024, the average price for a new car was $47,870, down 1.7% from August 2023, but still up significantly from four years earlier, when prices where in the upper $38,000s, according to automotive-research company Kelley Blue Book.
And according to Edmunds, an online resource for car shoppers, the average new-car loan came with a 7.1% interest rate, a 68.8-month payment term (almost six years) and a whopping $736 monthly payment.
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% of new cars leased in early 2024, compared with 19% in early 2023.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Weighing the costs of buying vs leasing a car
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% 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 repair 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 than buying?
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 OK 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. (For more, see “Is a Hybrid Car Right for You?”)
How to lower the purchase price of a car
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 (IIHS), including Toyota Corollas and Honda Civics.
If you plan to get a loan, shop among local banks and credit unions — they typically offer more competitive interest rates than dealers.
Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.
Related Content
-
Savings Goal CalculatorTools Want to know how much you need to save each month to reach your financial goals? Our calculator helps you build a realistic savings plan.
-
Cash vs. Mortgage: How to Pay for Your Second HomeShould you buy your second home outright or finance it with a loan? Weigh the pros, cons and tax implications before making the leap.
-
The Seven Best-Paying Side Gigs For RetireesIf you're worried you won't have enough saved for a comfortable retirement, or that life after work will be boring, these well-paid roles could be the answer.
-
$40,000 CD vs. $40,000 High-Yield Savings Account: 3 Things Savers Should Consider NowBoth options offer risk-free methods to grow your savings. Learn how much you can earn with each, how they differ and which one suits you best.
-
T-Mobile's Free iPhone 17 Deal: A Smart Switch or a Hidden Catch?Receive a free iPhone 17 when you switch to T-Mobile. We'll explain whether the deal is worth it.
-
How an Expired Passport Thwarted Blackmail (and What Other Important Documents You Should Keep)An optometrist produced his expired passport to foil a blackmail attempt by the daughter of a former employee. After proving he was out of the country on the date of a forged diary entry, he took it a step further.
-
Confused About the New COVID Vaccine and Medicare? What You Need to KnowGetting the new COVID-19 vaccine covered by Medicare isn't as easy this year as it was in the past. Here's what you need to know before you take a trip to your pharmacy.
-
How Digital Platforms Are Changing the Way You Invest in GoldInvesting in gold is easier than ever thanks to digital platforms. Learn how online tools are lowering costs, increasing transparency and making gold accessible to all investors.
-
This Is How Life Insurance Can Fund Your Dreams NowBeyond a death benefit, life insurance can provide significant financial value and flexibility through 'living benefits' while you are still alive, helping with expenses like education, business ventures or retirement.
-
Potential Trouble for Retirees: A Wealth Adviser's Guide to the OBBB's Impact on RetirementWhile some provisions might help, others could push you into a higher tax bracket and raise your costs. Be strategic about Roth conversions, charitable donations, estate tax plans and health care expenditures.
