Leasing vs. renting a car: Which should you choose?

Quick insights

• Leasing is a good option when you need extended, predictable use of a vehicle.
• Renting a car is often better suited for temporary, immediate driving needs.
• The two options are similar in several ways, mainly in that you don’t own the vehicle while you’re using it.

Leasing a car means you pay to use it for a few years without the commitment of a purchase. Renting a car is for even shorter-term use, such as a vacation or weekend trip. Let’s review both options in more detail.

What is a car lease, and what is a rental?

A car lease is a long-term financial agreement; you pay to use a vehicle for a set period, typically with monthly payments and an option to buy the car at the end. A car rental is an agreement where you typically pay per day or week to use a car, without an option to purchase the car.

Renting vs. leasing: How they compare

You’ll find that aspects of leases and rentals are pretty distinct despite the similarities.

Time periods

In general, leasing contracts last 2 to 4 years, whereas rental cars are used for days or weeks. There are some additional options on both ends of the spectrum. Short-term leases, for example, last less than two years. Long-term car rentals may also be available with some companies. You could pay monthly, but the full rental period probably won’t be able to exceed a year.

General requirements for renting and leasing cars

Here’s what you’ll typically need to apply for a car lease:

• Credit check
• Down payment
• Proof of income
• Car insurance
• Driver’s license

By comparison, the requirements to rent a car are somewhat less extensive:

• Driver’s license
• Age requirement (21+ for many companies)
• Credit or debit card
• Car insurance

Associated costs

A standard lease requires monthly payments and is typically a commitment of two or more years. Rental cars usually cost a daily rate, but you may also be able to rent a car and pay based on your hourly, weekly, or month-to-month usage. Rental car payments are often due at the end of the rental.

In addition to the recurring costs, vehicle leases and rentals both have upfront costs. For a lease, that’s a down payment, the amount of which can vary. For a rental, the company might require a deposit before you can drive away, or at least a hold that’s charged to a credit or debit card.

Return process

Here’s how the return process for car rentals and leases compares:

When returning a rental car:

• The car must be returned to a designated rental location, though some companies will pick up the vehicle from you.
• Returning the car late can result in surcharges, such as an additional hourly or daily rate.
• The car must typically be returned with a full tank of gas, or you might be charged a refueling fee.
• An inspection will take place on the spot or after the car is returned, and certain damages can cost a fee.
• Final payment is due.

When returning a lease:

• The car may need to be returned to the dealership where it was leased.
• The final monthly payment could be due shortly before or after the vehicle is due back.
• You might be able to buy out your lease, usually at a purchase price outlined in your lease agreement.
• A vehicle inspection will assess wear and tear; excessive damage or mileage may result in extra charges.

When should you lease or rent a car?

Here are a few points that capture when you might lease a car vs. renting one:

Leasing

• You need a vehicle for several years but don’t want to buy a car.
• You want to drive newer cars or models every few years.
• The maintenance and repair costs often associated with owning a car aren’t appealing or don’t fit your budget.

Renting

• You need a car for a shorter time period, like a personal or business trip, rather than on an ongoing basis.
• You want to drive different vehicles frequently or need a certain type for a certain time.
• The responsibility or commitment of a long-term contract isn’t for you.

Is it better to lease or rent a car?

Leasing and renting are distinct ways of paying to use a car for a set period. Potential deciding factors could be your needs and budget:

• Needs: Do you need a vehicle to commute to a job or only from time to time? A car lease is an agreement that generally lasts two or more years. That’s a lot longer than common rental periods. Needing a vehicle on a regular basis often leads people to lease or buy a car, which are both long-term decisions.
• Budget: Both have their costs. Leasing requires a down payment and monthly installments, often for two or more years. Renting may cost an initial deposit, and the final payment will vary based on several factors, including the type of car and duration of the rental.

In summary

Leasing a car involves a long-term contract where you pay to use a vehicle for several years. You won’t own the vehicle, but when the lease ends, you could return the car, buy it or lease another one. Renting a car is a solution when you need a car short-term. That’s usually days or weeks, but the timing is flexible and doesn’t require a long-term commitment.