Financial Standoff: Renting a Car vs. Buying a Car – What Should You Do?

Hello and welcome to Financial Face-off, the MarketWatch column where we help you evaluate financial decisions. Our columnist will make 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 off the balance in monthly payments (with interest, of course). With leasing, you may have to make a down payment depending on your credit score, and then make monthly payments for the life of the lease, usually two to three years.

Rent-to-buy is a classic financial option, but the COVID-19 pandemic has brought new and unusual wrinkles with it. It is a very difficult time to buy a car. Stock is low thanks to a global shortage of microchips, and prices for both new and used models are at record levels.

The average new-car deal price was $47,077 as of January 2022, up from an average of $43,332 in 2021. The average used car price in 2021 was $26,910, Up from $22,337 in 2020.

“New car prices are at the ceiling, and used car prices are at the ceiling.”

– Kelly Blue Book Editor Matt Deggin

Translation: Like some homes, cars are now being sold at a premium.

“I’ve been doing this for over a decade and have never seen what we’ve been up to. New-car prices are pushing the boundaries, and used-car prices are hitting the roof,” said Matt Deggin, Kelley Blue Book editor.

Prices are so high that some experts say it is better to wait as long as possible before buying a new car.

But if your old driver just quit, or if your new job means you need to drive more, here’s how to decide whether to rent or buy, according to car buying experts from Kelley Blue Book,, and more than a dozen financial advisors with the National Association. For personal financial advisors.

why does it matter

Get ready for sticker shock. Average monthly loan repayments for a new car hit a record high of $636 in the third quarter of 2021, according to credit reporting firm Experian EXPN,
+ 0.79%
The median monthly rent was $506.

America’s most popular car, the Ford F,
Experian found that the F-150 had a median monthly rent payment of $542 or a median monthly loan payment of $768 in the third quarter of 2021.

This makes it seem like renting is cheaper – and it is, if you just 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 a vehicle, especially if you’re going to own it for seven to ten years. It’s going to play the math in your favor and it’s cheaper than renting over and over again,” said Evan Drury, senior director of insights at


Buy. Yes, even at these prices.

my reasons

Buyers can build equity. Deggin, who paid all the cash for his personal car, said that after you pay off your loan, you own the car free and clear and it becomes an asset that you can sell or use to pay for your next car. 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 term of the car loan, said Scott Batfield, certified financial planner with Buttfield & Associates in Red Bank, New Jersey.

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

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

For someone who will 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 best.

Money is relatively cheap to borrow at the moment for people with good credit, which makes the purchase more attractive. However, if you have bad credit, it can negatively affect the type of lease you can get, including the size of your down payment and monthly payments.

Is my judgment the best for you?

“The math is pretty easy: owning a car in the long term and keeping up with a maintenance plan is cheaper than leasing. It’s cheaper than renting a car,” says Josh Chamberlain, certified financial planner with Chamberlain Financial Advisors in Decatur, Ga.

Most importantly, how much do you drive in a year? This is important because leases have limits on the number of miles you are allowed to put on a car each year (usually around 10,000 to 15,000 miles). If you exceed that, you will have to pay a fine per mile. These can really add up.

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

— Evan Drury, Senior Director of Insights at

Are you the type of car owner who loves to personalize your vehicle with giant tires and a kickin speaker system? Leasing is not a good option for you, because you cannot make modifications to the rented vehicles.

Other key questions: How important is it to have a lower monthly payment? Leasing provides that. How important is driving a nice, new car to you? Leasing is a way to get an entry-level luxury car at 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 good for you,” Drury said.

Is my judgment the best for you? Tell us in the comments which option should win this financial showdown. If you have ideas about future financial standoff pillars, send me an email.