Should Military Families Buy or Lease Their Next Car? Here’s What Saves More Money

Buying and leasing both have their advantages, but the cheaper option depends on how long you plan to keep the vehicle, how much you drive, and whether you’re expecting a PCS, deployment, or other life changes.

Before you sign on the dotted line, here’s what military families should consider.

How Does Leasing Work?

Leasing a vehicle is similar to renting it as you pay a monthly fee for the ability to use the car for a certain amount of time, which is typically two to three years. During that time, your lease agreement will dictate how you can use the vehicle, such as how many miles you can drive each year of the lease and whether you can modify the car.

At the end of the lease period, you’ll have a few options: you can return the vehicle and walk away, lease a new model, or purchase the vehicle outright using cash or financing. Here’s a breakdown of the advantages and disadvantages of leasing:

• Lower monthly payments than financing: Since you’re paying for the depreciation of the car during the lease term instead of the full sticker price, you’ll typically have lower monthly payments than financing.
• Little or no down payment: Most lease agreements typically require a lower down payment than financing, while a “$0 down” lease is also a possibility.
• The option to drive a new vehicle every few years: At the end of the lease, you can start a lease on a new model and stay up to date on the latest technology, styling, and safety features.
• Mileage limits and wear-and-tear charges: A couple of downsides to leasing include the annual mileage allotments and possible wear-and-tear charges when you return the car.
• No ownership at the end of lease: If you choose to return the vehicle, you won’t own anything after making all the payments unless you choose to buy the car at lease end.

How Does Financing Work?

Financing a vehicle is a little more straightforward. When you finance a vehicle, you’ll apply for a traditional loan and make the payments until it’s paid off, which is typically 48 to 72 months. Since you’re paying for the entire price of the car, financing it can lead to higher monthly payments, which also depends on your down payment amount and interest rate. Here is a breakdown of the advantages and disadvantages of financing:

• Higher monthly payments: You’ll typically have higher monthly payments with financing because you’re paying for the entire price of the car.
• Build equity with each payment: Each payment you make toward the loan is another step closer to full ownership.
• No mileage restrictions: When financing, you can drive the car as much as you would like, with no mileage caps.
• Freedom to modify or sell the vehicle: After the payments are complete and you receive the title, you can sell the car. You can also modify it if you would like.
• Lower long-term cost if you keep the car for many years

Which Option Costs Less?

Leasing can cost less if you prefer to drive a new vehicle every two or three years, since the monthly payments are lower. Also, if you drive within the mileage allotment, typically 10,000 to 12,000 miles, you won’t have to pay any extra fees. In total, leasing will cost less if you don’t mind never owning the vehicle and you adhere to the terms of the lease agreement, as racking up fees for going over the mileage limit can add up.

Financing a vehicle may cost less if you plan to keep the car for five years or longer and drive long distances, since you’ll get more use out of the car and your money.

• Although leasing will cost you less in the long-run, frequent PCS moves can make timing the end of a lease challenging.
• Deployments may reduce your annual mileage, but some service members exceed lease limits before or after deployment.
• The Servicemembers Civic Relief Act (SCRA) may allow eligible active-duty service members to terminate certain vehicle leases early after receiving qualifying PCS or deployment orders, but specific conditions apply.
• Some automakers offer military rebates that apply to purchases, leases, or both.

The Bottom Line

The bottom line is that leasing a car for a total of $15,000 for the length of the lease will always cost less than financing a car for $20,000. In that case, leasing is a cheaper option. That said, if you plan to keep the car for many years (5 to 10 years), then financing can still be the cheaper option. Ultimately, the best choice depends on your budget, driving habits, and future military obligations.