Buying vs. Leasing a Car (And How it Affects Insurance)

“Should I lease or buy a new car?” 

Many of us ask ourselves this question when we’re looking to get a brand new vehicle. You may even be wondering about it yourself right now! 

If you’re in the market to get a new car, it’s important to weigh all of your options when deciding to buy or lease the vehicle. This includes knowing how both of those options will affect your insurance coverage. 

At Berry Insurance, we’ve helped our many clients receive the right auto insurance for their specific needs - whether the vehicles are currently leased, being financed, or owned outright. Before you fully commit to leasing or buying a new car, let's review the pros and cons of both options, as well as what you can expect from your insurance coverage. 

What is the difference between buying and leasing a car?

Before we cover your insurance options, let’s quickly review the main differences between leasing and buying a car. 

When choosing to lease a car, you are essentially renting the vehicle for a specific period of time from the lessor. This requires you to make monthly payments to keep possession of the car. How long you are allowed to keep the car depends on the lessor’s own policies, but most will typically last around 24-36 months, although shorter or longer leases are sometimes available. 

If you instead choose to buy a car, you will immediately take title to it. You will outright own the vehicle if you pay for it with cash or after you pay off a loan taken out to finance the purchase. When you buy a new car, you have complete control over what you do with the vehicle, such as choosing to modify, trade, or sell it entirely. However, financed vehicles will have more restrictions or insurance requirements applied until the loans are fully paid off. 

What are the advantages and disadvantages of leasing a car? 

Choosing to lease a vehicle can be beneficial for many drivers, but the lease may impose certain restrictions on how you can use the car. 

Advantages of leasing a car: 

• Your monthly payment is typically lower. 
• You get to drive a new car during its most trouble-free years. 
• You can trade the vehicle into the dealer/lessor for another new car. 
• You can drive a higher priced vehicle that you may not otherwise be able to afford. 
• You may have the option to buy the car at the end of the lease. 

Disadvantages of leasing a car: 

• Leased vehicles will typically have limited mileage, usually between 10,000 and 15,000 miles per year. 
• You will likely not be able to make modifications to the vehicle, at the risk of fees being applied to your lease. 
• Unless the lease includes GAP insurance coverage, you may also owe costs related to any accidents you are involved in that your auto insurance does not cover. 
• Leases will have many fees applied, such as those for acquisition or any excess wear and tear. 

What are the advantages and disadvantages of buying a car? 

If you opt to buy your vehicle when shopping for a new car, you will not experience the restrictions fees that come with leasing but may pay more in the short term. 

Advantages of buying a car: 

• No mileage limits. 
• Total ownership and control for any modifications or improvements you wish to make to the vehicle. 
• It is typically cheaper in the long term when compared to leasing. 
• No charges for wear and tear. 
• Free to sell, trade, or gift your vehicle. 

Disadvantages to buying a car: 

• Higher monthly payments when compared to leasing. 
• You are responsible for repair costs once the vehicle's warranty expires. 
• A larger down payment is required. 

How does leasing or financing a car affect auto insurance? 

While choosing to buy your new car will not alter your insurance options, financing or leasing your vehicle will impose certain requirements for your auto insurance policy. 

When looking to insure a leased or financed vehicle, you will be required to carry both collision and comprehensive coverage on your auto policy. Collision insurance covers your vehicle after an accident with another driver, regardless of fault. Comprehensive insurance instead covers damages to your car from incidents other than a collision, including fallen trees/branches, vandalism, theft, floods, animals, wind, hail, and pests. 

While we typically recommend all drivers to consider these optional coverages, your lease or finance loan agreement will require you to have set deductible amounts for comprehensive and collision coverages, which could affect your insurance rate. 

You may also wish to (or be required to) purchase GAP insurance coverage. Otherwise known as “guaranteed asset protection”, GAP coverage has your insurance help to pay off your auto finance loan or lease if you owe more than the car’s depreciated value in the event that it is totaled or stolen. GAP insurance occasionally comes included in the terms of your car lease or finance loan agreement, so be sure to check the terms of your own policy before you pay for separate coverage.  

How can I save money on my auto insurance when leasing? 

Since the insurance requirements for leasing or financing a car are generally greater, with required policies or deductible amounts, the cost of your auto insurance will usually be higher than that of a policy for an owned vehicle. 

Follow these tips to help you save money on your policy for your leased vehicle: 

• Bundle your policies - Bundling your auto and home or renters insurance policy can provide discounts that can help lower the cost of your insurance policy. 
• Shop around for insurers - If the first rate you get is too high, try shopping around with different insurance providers to see if lower rates are available.
• Raise your deductible - While you will have more to pay out-of-pocket in the event of a claim, increasing deductibles on your policy’s collision or comprehensive coverage may lower your premium. 

Always be sure to ask your insurance agent or provider about any possible discounts that they can apply to your policy. For more tips on what you can do to lower the price of your auto policy, read this guide: 13 Ways to Save On Your Auto Insurance.

To buy or not to buy?

Ultimately the decision of whether you should lease or buy your next car lies with you and what you hope to get out of your new vehicle. While your auto insurance rates may be more expensive for a leased vehicle, the lower upfront cost of a car lease may make it more enticing for you. Same thing applies if financing the purchase is the best option for you right now. 

No matter the choice, we support you and want to be sure that you and your new vehicle are properly covered. If you’re buying/leasing a new car or looking for a new auto insurance policy, learn all about the process of getting your new auto policy here: How to Buy Car Insurance  (Step-by-Step Process).