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Buying vs. Leasing a Car

Everyone who wants to buy a car is faced with a dilemma – whether to buy a car with cash or take out a loan. But there is another option, more convenient and profitable for the future car owner – leasing. In the United States and European countries, more than 30% of cars from total sales are purchased on car leasing terms. In this article, we will understand why car leasing is much more convenient and profitable than a traditional purchase for both individuals and businessmen.

Buying a car for cash

Cars are becoming more expensive, but people with any income do not stop hoping to someday save up the necessary amount and purchase such a coveted and necessary car for family or business trips. It will take more than one year to save money for the coveted purchase, and if we take into account the instability of the currency and economic crises, then for many Americans the dream of a personal car will remain a dream.

To save up for a car as quickly as possible, you need to save at least 50% of your monthly income. But even in this situation, the austerity regime will have to be turned on for several years. And then, after more than two years, car prices will rise (or inflation will occur), and you will miss at least another 20% of the cost of the car. But the main thing is not to forget about the compulsory insurance of the car, as well as about comprehensive insurance, which will cost about 10% of the cost of the vehicle.

Buying a car for cash entails a whole series of not very pleasant moments that need to be considered:

  • You will need to take at least a week of vacation to travel to dealerships looking for the best deal;
  • Be prepared to bargain yourself with the sales manager;
  • You will need to pay for the insurance in a one-time payment – there is no installment plan when buying a car for cash;
  • You will have to register your car with the traffic police;
  • And you still have to waste time and pay in full for tire fitting twice a year.

As you can see, buying a car with your own funds is an expensive pleasure that requires not only money but also time.

Car registration under a lease agreement

Leasing involves the purchase of a vehicle by a financial company, which then transfers it for use and ownership to the lessee for a certain monthly fee and on the terms specified in the lease agreement. It is much faster, more convenient and more profitable than buying a car with cash.

The car lease registration scheme looks like this:

  1. Choose a specific car that suits you in terms of cost and parameters. Moreover, it can be either new from the salon or a used one;
  2. Find a leasing company with suitable financing conditions, good customer reviews and apply for a car lease for the selected car;
  3. If you do not want to look for a car yourself, then you can connect an employee of the leasing company to search for the required car in a car dealership by setting parameters by brand, model, cost, technical characteristics;
  4. Provide the necessary documents: a passport, a driver’s license, a certificate confirming solvency; for businessmen – a certificate of registration of the organization, the charter of the company, copies of the passports of the director and founder, financial statements for the last year;
  5. The lessor assesses the solvency of a potential client, takes into account financial risks and makes a commercial offer;
  6. If the answer to the application is positive, you will have to study the contract, sign it and make an initial advance payment;
  7. After the leasing company buys the car and hands it over for use, you will need to make monthly lease payments according to the established schedule.

Features of car leasing

The lessee can be both legal companies and individuals. Earlier, commercial vehicles were leased only for businessmen – buses, trucks, forklifts, special vehicles. It was impossible for ordinary citizens to lease a passenger car.

Today leasing companies help individuals to buy any car relatively quickly and on favorable terms. In this case, the owner of the car is the leasing company, the lessee only uses the car. Moreover, the owner of the machine invites the user to take care of its maintenance:

  • Registration of the car in the traffic police;
  • Solving the issue with the tire service (registration for the service, discount from 10%);
  • Passing a timely technical inspection, etc.

All additional expenses, such as car insurance, payment of transport tax, fall on the shoulders of the lessee. They are included in lease payments, so the burden on the budget is even, which is very convenient.

How to calculate lease payments

Lease payments are relatively small as they are calculated without residual value. Residual value is the amount that the lessee pays if he/she wants to buy the car back into his/her ownership after the expiration of the lease agreement. If the purchase of the car is not in your interests, then it must be returned to the owner – the lessor. You can also use leasing vs buying a car calculator online.

To reduce the lease payments, you can increase the down payment. The more you pay at the beginning of the deal, the less you will have to pay throughout the lease term. With the lease calculator, you can quickly calculate the approximate payment.

Types of car leasing

  • With redemption. In this case, the lessee can redeem the car at the residual value.
  • No redemption. When the lease expires, the lessee returns the car to the leasing company. After that, you can choose a new car again and lease it.

Pros of car leasing

  • Leasing companies offer flexible terms for purchasing a car and convenient payment schemes for leasing payments. The schedule can be not only monthly but also seasonal;
  • No need to waste time and energy on paperwork and car registration – all these worries can be taken over by the lessor;
  • The process of collecting official documents and concluding a lease agreement is simplified as much as possible – it takes 5-7 days;
  • All communications with leasing companies are transparent, no one will hide the commission or any other additional payments;
  • Thanks to car leasing, it is possible to change a car for a new one every few years;
  • Leasing transactions are concluded without hidden fees – everything is transparent and fair;
  • Refund of value-added tax (20 percent) in full, but this is only for legal entities.

Cons of car leasing

  • The car is the property of the leasing company. If there are problems with solvency, the car can be seized even without going to court;
  • Lessees cannot sublease a leased car;
  • Lack of tax preferences for individuals. Due to the nature of the tax system, only companies can return VAT;

In this table, we have collected for you the main parameters for comparing cash and lease purchases for individuals and legal entities.

Cash purchase Leasing for individuals Leasing for legal entities
Vehicle type New and used cars New and used cars New and used cars
Vehicle cost Recommended retail price MSRP minus 10 percent of the price MSRP minus 15 percent of the price
Prepaid expense Not provided, the full amount is paid immediately 5+ percent of the cost 5+ percent of the cost
Documents The passport.
Driver’s license
The passport.
Driver’s license
Registration of a legal entity.
Accounting report for the last 12 months.
Company head passports
Vehicle insurance The entire amount of insurance is paid at once for a year Purchased at a discount and included in monthly lease payments Purchased at a discount and included in monthly lease payments
Service: scheduled technical inspection of the car, tire service and storage, provision of a replacement car, fuel program Issued independently Available at the leasing company with a discount for each service up to 10 percent Available at the leasing company with a discount for each service up to 10 percent
Value-added tax Paid in full and non-refundable Paid in full and non-refundable Paid and fully refundable back


  • Leasing a car in Michigan for citizens will be a profitable and convenient solution if the consumer needs a status expensive car and there are plans to frequently update the car. In the case when you plan to purchase a car for many years, it is better to do it at your own expense;
  • For business owners, car leasing is more profitable since it allows you to reduce taxes and return 20% of the cost of a car in the form of VAT. You can also get up to 15% in the form of a discount on the purchase and further maintenance of the car.