When it’s time to take home a new car, you will have no shortage of crucial decisions to make, including perhaps the biggest one: buy or lease?

Both options involve you driving off a lot in a vehicle, but each affects your finances and future experience in very different ways. Use this guide on the key details and pros and cons of each to help you determine the best avenue for you.

The basics of leasing

When you lease a vehicle, you essentially rent it from a dealership. However, this process is drastically different from renting a vehicle short term from an agency such as Enterprise. With a lease, you sign a longer contract, typically ranging from twenty-four to forty-eight months. You make monthly rental payments to a dealership, and when your term ends, you are required to return the vehicle in good condition.

Pros

Leasing is typically less costly than buying a vehicle. The latter usually involves taking out a loan based on the full cost of the vehicle, which you then pay back plus interest and other fees. When you lease, though, you essentially pay a dealer for the cost of depreciation, not the cost of the car itself. In other words, you compensate them for the value the vehicle loses during your rental term before it is returned and offered to another driver.

This is also a low-cost way to stay on the cutting edge of automotive technology. Dealers tend to only lease new or recent-year vehicles, so not only can you drive away in an up-to-date car, but you will also have the chance to upgrade in as little as a few months. Besides giving you access to all the latest bells and whistles, this saves you the inconvenience and costs of having to maintain an older vehicle with degrading components.

Cons

However, this ownership arrangement is not without its drawbacks. Renting a car long term basically means you’re borrowing someone else’s property, so you will be obligated to follow upkeep according to the dealership’s standards, adhere to a strict maintenance schedule, and keep it fairly clean. While the leaser will certainly anticipate ordinary wear-and-tear on your vehicle, serious damage like a broken windshield or dented body will lead to hefty fees once you turn it in. You may even be given mileage restrictions (for example, 10,000 miles per year) that can limit your travel freedoms.

Leasing also virtually eliminates the option to shop for a used or older vehicle. If you have your sights on a low-cost model that has aged gracefully, you would be better off buying a used or certified pre-owned vehicle (meaning it gets refurbished for a new owner).

The basics of buying

This is the arrangement that you are likely more familiar with: you purchase a vehicle to take home permanently and have it titled in your name. While you can “pay cash”—pay the entire sticker price of the car plus taxes and fees up front—this is typically too cumbersome for most drivers, who will likely opt to finance their vehicle instead. Financing involves taking out a loan from a bank, credit union, or other lender and making ongoing monthly payments. Consumer Reports breaks it down as follows: “A chunk of each payment is put toward paying interest on the loan, and the rest is used to pay down the principal. The higher the interest rate, the higher the payment. As you repay the principal, you build equity until—by the end of the loan—the car is all yours.”

Pros

If you want the pride of knowing that a vehicle is 100 percent in your name, then buying is the option for you. You can operate and maintain the car as you please, and you can continue driving it as long as you’d like.

Further, while leasing is cheaper in the short term, buying a vehicle and retaining it for several years can save you money in the long run, particularly if you can keep it running well after you finish paying off your loan. Should you maintain it properly, you can also resell it and apply the funds toward your next vehicle.

On the subject of savings, one of the cheapest ways to obtain a vehicle is to purchase a used car. Some dealerships even offer vehicles for under $15,000, so you could potentially save up to pay cash for such a vehicle and enjoy freedom from making monthly payments.

Cons

Purchasing a vehicle is typically more expensive by month than leasing a comparable model, and it is also a longer-term commitment, especially if you want to reap the value of car ownership over several years. Additionally, if you have poor credit, not only will you have trouble applying for financing, but you will also pay a higher interest rate, which will make your monthly payments greater.

Key takeaways

When it comes to buying or leasing, one option is not necessarily better than the other—it all depends on which is more appropriate for you. Review your finances and credit, consider your vehicle must-haves, and be open with dealerships about your unique situation. While they may have a clear interest in selling you a car, a salesperson can be an excellent guide to help you come to the wisest decision.