Is it Cheaper to Lease a Car or Rent One?

Is it Cheaper to Lease a Car or Rent One?
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Leasing a car and renting a car are two very different things. A rental is charged in increments by time -- usually by the day -- and once you're done, you return the car. In a lease, you are actually paying a company to buy the car you'll be using, and you're paying them back with interest over a certain period of time. To determine which one you want, you need to ask yourself some questions first.

How Long Do You Need the Car For?

Leasing contracts usually last over a period of years. A company that's leasing you the car wants to make sure you pay them enough to cover their loses from buying the car, as well as for the depreciation the car will go through as you drive it. On top of that, you'll also be paying them interest. To keep the payments low, you'll want to lease over a few years. On the other hand, renting a car by the day or month is for when you need a car for a much shorter time period. Car rental companies often offer special deals to customers who need to rent a car on a monthly basis.

How Are You Planning to Use the Car?

Another question to ask yourself, what are you going to use the car for? Is it for a business trip, a vacation or for getting back and forth to work every day indefinitely? Going back to how long you plan to use the car, you need to think about your long- and short-term goals. Leasing might be the way to go if you need a ride to work for the next two years while you save up some money. Renting is better for short-term needs, like being able to visit a sick relative who needs a babysitter during the day.

How Are You Going to Pay For It?

Yet another issue you need to consider is how you plan to pay for your car. Because leasing is basically a form of loan finance, you need to have cash for your payments every month. But rental companies actually prefer you to pay with a major credit card, as they can charge you for any damages they find when you turn the car in. Also, rental companies probably won't ask you for much other than your driver's license and your credit card, while a lease company will go through a whole loan approval. You'll need proof of income, a credit check, an employment history check and everything else you would need just like if you were borrowing a car loan from a bank.

The Bottom Line

Leasing a car is for when you need a permanent or semi-permanent mode of transportation. Renting is for when you only need a car for a little while. Exact price will be determined by the companies you go through, but the simplest answer is that renting a car is cheaper. Rental companies charge a set rate and you can return the car whenever you want. Leasing companies finance a loan for you and charge the price of the car, interest and depreciation. You can't just return a lease and be free and clear of the loan.