If there is one area that is most contentious when it comes automobiles, it is the choice over whether to finance its purchase or to lease it.

Financial guru Suze Orman is known for her no-nonsense approach to money management, and her stance on car leasing is no exception. She firmly believes that leasing is the biggest waste of money. Instead, she advocates for  financing a purchase, paying it off, and keeping it for the long haul. Broadly speaking, she says people don’t rent their house and they shouldn’t rent a car either.

24/7 Wall St. Insights:

• Leasing an automobile is a popular option because of the lower monthly costs and flexibility the arrangement offers.
• Financing a car is optimal for those concerned about saving money because you own the car outright at the end of the loan.
• There are compelling arguments for both options, though, and we lay them all out below.

Orman’s advice has merit, especially for her primary target audience of people trying to gain control of their finances. Even though a car is a depreciating asset, once you pay it off, you own the car outright and there is one less bill to pay. 

There is a case that can be made in favor of leasing, such as benefiting those on a tight budget, so let’s break down the pros and cons of each approach.

Why leasing is better

• Lower monthly payments. Leasing often offers lower monthly payments compared to financing, making it more accessible for individuals with limited budgets.
• Newer vehicles. Leasing allows you to drive a newer, more advanced vehicle without the long-term commitment of ownership.
• Flexibility. Leasing offers greater flexibility, allowing you to change cars more frequently based on your needs. A growing family can change from a small commuter car at the outset and expand to a larger, more family-friendly model as needed.
• Comprehensive warranty coverage. Leasing often includes comprehensive warranty coverage, reducing the financial burden of unexpected repairs.

Why leasing is a poor choice

• No ownership. At the end of the lease term, you don’t own the vehicle and have to lease again, meaning you never don’t have a car note to pay.
• Mileage limitations. Exceeding the annual mileage limits on the car can result in hefty penalties.
• Hidden costs. Leasing often comes with hidden costs, like excessive wear and tear charges. You may have to get certain dings repaired that you might otherwise ignore if you owned the vehicle.
• Need for gap insurance. You need to buy gap insurance, which is insurance on the difference between the value of the car and the amount you still owe on it in case of an accident.
• Limited customization. You  often have to accept what the dealer has available and may not be able to customize the vehicle to your liking.

Why financing is better

• Ownership. Once you pay off the car loan, you own the vehicle free and clear. There are no more monthly note payments to worry about.
• No mileage limitations. You can drive as much as you want as often as you want without penalty.
• Customization options. You can customize and accessorize a car to your liking that you are buying.
• Potential for appreciation. While it likely only applies to certain high-end automobiles, some cars do appreciate in value over time.

Why financing drives people to lease

• Higher monthly payments. Financing a car typically comes with higher monthly payments than leasing because you’re paying for the full value of the car, not just a portion of it.
• Long-term commitment. While you could sell the vehicle you’re financing, you often won’t get as much as you owe, meaning you’re committed to having the vehicle for the duration of the loan term.
• Maintenance and repair costs. You will be the one paying for all maintenance and repair costs.
• Likelihood for depreciation. Most vehicles depreciate in value over time, in fact, it is typical to lose 20% as soon as the vehicle leaves the dealer’s lot.

Key takeaways

While Suze Orman’s stance on leasing is valid, it is important to remember there are certain arguments that favor leasing over buying. The best option depends on your individual needs, financial situation, and driving habits. 

So long as you don’t give into the temptation to lease more car than you can afford, it could be a worthwhile option for some. Yet if you are serious about your finances, then Orman’s advice is spot on and you should be buying over leasing.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.