Think new cars cost too much these days? Here’s a surprise…at the start of 2025, you could lease a brand-new Fiat 500e for a price that would fit anyone’s budget—$0 down and $0 per month. A dealership in Denver did offer that hard-to-beat price, though only to Colorado residents—and technically, the cars weren’t free due to taxes. Of course, virtually free Fiat leases are uncommon…but the offer does raise some big questions for car shoppers—should I buy or lease my next car…how does leasing a car work…and is leasing a car a good idea?
Monthly lease rates usually are lower than monthly car-loan payments, which is enticing. But there are other things to think about, explains Bottom Line Personal’s car-buying expert Karl Brauer.
When you lease a vehicle, you don’t own it—leasing is more akin to renting the vehicle for several years. On the plus side…
You get the advantages of driving a new car without the challenges of owning and maintaining an older one.
You don’t have to worry about major repair bills. If your leased vehicle has any major mechanical issues during the lease period—typically three years—those almost certainly will be covered by its warranty. Maintenance and minor repairs may not be covered.
Leasing will get you more car for your money during the lease period. As of early 2025, the average new vehicle lease costs less than $600 per month, well below the average monthly payment for car buyers, which tops $700.
A lease tends to require a significantly lower up-front payment than the downpayment on a new car, though this can vary. Automakers know that today’s high prices make new cars unaffordable for many people, so they’re aggressively promoting lease offers as a way to fit pricy vehicles into consumers’ budgets. Lease terms can be especially attractive when automakers offer special lease deals on vehicles that are selling slowly, such as that Fiat mentioned above.
Lease payments might qualify as business expenses if you own a business and use your vehicle largely or entirely for business purposes, reducing your business’ taxable income. Some important notes: While there may be tax deductions associated with owning a car used for business, leases are unique as the actual lease payments may be deductible. Also, lease payments are not tax-deductible if you are leasing to own—only standard leases. Caution: Be sure to discuss this with your tax professional before leasing a vehicle—as with most tax matters, there are rules and restrictions.
You don’t have to deal with the hassles of selling the vehicle when you’re done with it—you just turn it back in at the dealership.
Most consumers today still opt to buy rather than lease vehicles…and there are good reasons for that.
If you lease a car, you return it at the end of the lease and then probably need a new car, which likely means taking out a new lease or loan. (Note: You’ll likely have the option to buy your leased vehicle when the lease ends, but you’ll need to assess the car’s buyout cost versus its market value to determine if the buyout price is a good deal or too high.) When you buy a car, you own that car when the loan is paid off. So while car buyers typically enjoy many years without monthly car payments, lessees do not. True, car loans usually are longer than car leases…and car buyers typically face increasing maintenance and repair bills as their vehicles age…but they almost inevitably come out well ahead of lessees in the long run.
Other reasons to buy rather than lease…
Cars last longer now. It’s common for cars to deliver 150,000 to 200,000 miles of largely trouble-free driving. Lessees typically part with their cars before they reach 50,000 miles, so they miss out on that advantage.
Buying is less costly over time. Vehicles experience their sharpest depreciation during their first few years on the road—and those are precisely the years that lessees are locked into. And insurance and registration fees tend to be higher for new cars—even leased new cars. In short, lessees get the very best years of vehicle ownership from a driving perspective…but arguably the worst ownership years from a financial perspective.
Leasing is less flexible than buying. If you buy a car, you can drive it for decades if you like it…or sell it quickly if you don’t. If you lease, prohibitive fees and penalties lock you into the pre-set lease term—even if your life changes in a way that means the vehicle no longer makes sense. Leasing a convertible when your employer transfers you from Daytona to Duluth? Enjoy driving your convertible in the cold.
People who lease face potentially steep charges if they exceed their leases’ mileage limits, which often is 12,000 miles per year, though this can vary. Car buyers can put as many or as few miles on their cars as they like. Lessees who drive much less than the mileage limit fail to get their money’s worth.
Lease contracts also tend to prohibit most vehicle modifications and customizations…and even small dings and scratches could result in added out-of-pocket costs at the end of the lease.
When everything is taken into account, buying is the better bet for most car shoppers. Leasing can be a worthwhile option for people who put great value on always driving a relatively new car…or for business owners who can obtain significant tax advantages by leasing.
If you have to creatively budget to afford a new car lease, you should probably buy a used car instead. You should never spend more than 20% of your take-home pay on vehicle costs, including insurance, fuel and maintenance. A one-to-three-year-old used car will cost substantially less than a new model, and it will have already gone through the bulk of its depreciation while still having plenty of reliable life left. And it may even have some remaining new-car warranty coverage.
But as of early 2025, there’s one additional situation when leasing can make a lot of sense—that’s when you are shopping for an electric vehicle.
As noted above, lease offers tend to be especially attractive for unpopular vehicles that dealers are struggling to sell. These days there’s one type of vehicle that’s selling particularly poorly and thus generating the most appealing lease offers—electric vehicles (EVs).
In fact, leasing an EV can make a lot of sense. Not only are attractive lease deals available as automakers and dealerships try to clear unsold EV inventory from their lots, but due to a loophole in the EV federal tax credit rules, many EVs that don’t qualify for the $7,500 credit when purchased do qualify when leased. The tax credit on a leased vehicle goes to the leasing company, not to the lessee, but that increases dealers’ and automakers’ incentive to offer attractive EV lease terms. The Fiat 500e mentioned above is an extreme example—federal and state tax credits help explain why a dealer would be willing to lease cars for free—but it’s far from the only example. Take Toyota’s EV, the bZ4X—it recently cost more than $700 per month, on average, to buy one…but less than $450 per month to lease one, in part due to the tax credit. Warning: The new Presidential administration might alter or eliminate EV tax credit rules.
Low EV resale values are another reason to lean toward leasing. If you lease, you won’t have to deal with selling your car, so plummeting resale values won’t directly affect you.
And because leases generally last only a few years, you don’t have to worry that you’ll be stuck driving out-of-date tech for very long if EV battery technology continues to improve.
Know that lease terms are negotiable. Dealerships often act as though automakers’ advertised lease deals are set in stone. They’re not. If you want to play hardball, tell the salesperson, “I know that’s the official lease offer, but this is the payment I’m comfortable making…,” then suggest a lower figure. If the dealership is anxious to get the car off the lot—as is often the case when attractive lease terms are advertised—the dealership might make a counteroffer below the advertised lease terms.
Check the “lease return fee” or “lease disposition fee.” Lease contracts usually include a fee of $200 to $500 that must be paid when the vehicle is returned at the lease’s end. Other potential fees are for vehicle wear and tear, early termination and going over the lease mileage. Officially this fee is to cover the dealership’s cost of inspecting the returned vehicle, but there’s a strong case to be made that the dealership should cover that cost. If the dealership is desperate, it might agree to lower or waive this fee. If a salesperson says he/she can’t adjust the return fee, say you’d be willing to instead adjust your monthly payment down to make up for it. Example: If a dealership refuses to eliminate a $350 return fee on a 36-month lease, say, “OK, then lower my lease payment by $10—that works out more or less the same” Dealerships don’t always agree to this, but it’s worth trying.
Confirm lease length and mileage limits. Most leases last 36 months and allow for 12,000 miles of driving per year, but there are plenty of exceptions. Read the lease carefully to make sure you know what you’re getting.
