Leases offer lower monthly payments than loans, with less money required upfront, and allow you to drive a new car every few years, without the hassles of major repairs or having to sell or trade it in when you’re ready to move on. The big tradeoff is that you don’t own the car; when the lease ends, you’ll have to return the car and find a replacement.
Another downside to leasing is that you’ll have less freedom than if you’d purchased the vehicle. You won’t be able to add features or customize your ride. When you sign the lease contract, you’ll be limited to driving only a certain number of miles. Mileage above that limit will be subject to a penalty fee. You could also be subject to fees if you fail to properly maintain the car during the lease.
If you think you’ll drive more than the typical lease limit, you can negotiate for a higher mileage allowance. This will up your monthly payment, but be cheaper in the long run than paying fees for going over the limit. For example, if the warranty covers 12,000 miles a year, you can negotiate for an additional 3,000 miles a year without penalty. Autotrader.com site editor Brian Moody says that if you need more miles than that, you’re better off buying the car.
Leasing makes the most sense for someone who enjoys driving the latest model, has little money for a down payment, doesn’t want to worry big repairs or other risks of long-term ownership, or is expecting a big lifestyle change in a couple years—say, starting a family or moving to another country.
Kelley Blue Book’s Brauer adds that if your business or corporation will be financing the car, it may also make more sense to lease.
Typically only consumers with good credit will qualify for a car lease, so if your credit is less than stellar, buying may be the only option. If you qualify for and decide to lease, never lease for longer than the length of the car’s warranty, so that you run little or no risk of having to pay for major repairs. Most cars have warranties up to 36,000 miles or three years. Luxury models often have longer warranties, up to 65,000 miles.
Every lease agreement is different, so look closely at the terms to avoid hefty fees or being on the hook for expensive repairs to a car you ultimately don’t own.
Read next: How Do I Get the Best Deal on a Car Loan?