Is it better to buy or lease a car? It Depends.

Most people have two options when they want a new car: buy it with a traditional loan or lease it.

Either can make sense, depending on your situation.

If you’re looking for the lowest overall cost over the longer term, buying a car with a loan, and then driving it for a while debt-free after you finish making payments, is usually the best option.

But if low monthly payments and a smaller down payment are a priority, a lease may be worth considering. And if you’re willing to try an electric vehicle or a plug-in hybrid, tax breaks available for leased models may make deals more affordable. Almost half of new EVs were acquired with leases in the second quarter of this year, up from around a fourth a year earlier, according to data from Experian.

The Federal Reserve’s decision Wednesday to cut its benchmark rate by half a point indirectly affects rates on car loans, which are also influenced by factors like the borrower’s credit score and the level of loan delinquencies. The average interest rate for a new-car loan in August was 7.1%, and 11.3% for a used-car loan, according to the automotive site Edmunds. “It will take several additional rate cuts before the cumulative effect becomes material for car buyers,” said Greg McBride, chief financial analyst at Bankrate.

Paying cash for your car is, of course, interest-free. But while car prices have eased somewhat, they remain high. The average transaction price in July was around $48,000 for a new car, and about $25,000 for a used car, according to Kelly Blue Book, part of Cox Automotive. Most people who buy a new automobile and many who buy one used get some kind of financing.

With a traditional loan, you make a down payment and then pay off the debt with fixed monthly payments over time. (The average new-car loan term is about six years.) When the loan is repaid, you can keep the car and drive it payment free or trade it in and get credit for its value toward your next car purchase.

With a lease, you’re essentially paying for the car’s depreciation — the difference between the car’s value at the beginning and end of the lease. Down payments and monthly payments on a lease are usually lower, but when the lease ends after two or three years, you haven’t built up any equity to help you acquire your next car.

Ivan Drury, senior manager of insights at Edmunds.com, ran an analysis for The New York Times that illustrates the difference between traditional financing and leasing for a popular car model.

Consider a 2025 Toyota Camry SE sedan, purchased for about $40,910 (including taxes, fees, and any add-ons, like extended warranties), with a down payment of $3,365 and a loan through the dealership of $37,545, paid over 72 months at 7.4% interest. The final cost to the buyer after paying off the loan, Drury’s calculation shows, would be about $50,161. The car’s estimated value after six years would be $14,623.

Lease terms are typically shorter than traditional loans. So to arrive at a rough comparison over six years, Drury ran the lease calculation as if the shopper had taken out two consecutive 36-month leases on the same terms, with a down payment of $1,729 and $33,390 (roughly the amount the car is expected to depreciate plus taxes, fees and any add-ons) financed at 7.4%. The final cost in this scenario, which leaves the driver with no equity in the car after six years, would be $5,908 higher than traditional loan financing when factoring in equity earned with the loan option.

But monthly payments for the lease would be $528, compared with $650 for the loan. Ben Preston, an automotive writer with Consumer Reports, said that can make a difference to shoppers on a strict budget — say, a young couple needing a bigger car to accommodate a growing family. But if you’re choosing a lease just to get a fancy car that you couldn’t otherwise afford, he said, you may want to reconsider. “Think about what you need versus what you want,” he said.

Buying a used Camry is the overall cheapest option, Drury’s analysis shows. The interest rate on a loan for a 2021 Camry is higher but the amount financed is lower and you build equity in the car, so the total cost is under $32,000. The downside? You’ll have potentially higher maintenance and repair costs as the car ages, and you won’t have the most up-to-date safety features. And that’s something to think about, particularly if a teenager new to driving will be behind the wheel.

Also, leases have requirements that can add to your costs if you’re not careful, said Charlie Chesbrough, a senior economist at Cox Automotive. A lease may not be ideal if you drive long distances, for instance, because they have mileage caps — say, 15,000 miles per year. If you exceed the limit, you may owe fees of 15 to 30 cents for each extra mile.

You could also be charged fees for excess “wear and tear,” he said, so you must be careful about how you use the vehicle, particularly if it’s a pickup truck. A couple of minor dings probably won’t cost you. “But if it looks like you’ve been throwing cinder blocks into the back, that’s a different story,” Chesbrough said.

If you’re considering leasing an electric vehicle or a plug-in hybrid, you could make lower payments because of a quirk in the “clean vehicle” tax breaks created by the Inflation Reduction Act. The law created a tax credit of up to $7,500 for the purchase of a new EV, but it can be hard to qualify because of income limits and other complex criteria, including where the car was manufactured and the source of components used in the car’s battery. Leases, however, are considered “commercial” transactions, so most of those restrictions don’t apply, Chesbrough said. Carmakers receive the $7,500 credit and can pass the savings along to buyers by lowering their monthly lease payments.

There were concerns about whether car dealers would share the full value of the credit with customers in their leases, Drury said. But with some consumers slow to warm to EVs because of the cost and the spotty availability of public charging options, dealers are eager to move electric cars off sales lots, he said. “It’s almost guaranteed that you’ll get the full $7,500.”

Check manufacturer and dealer websites for lease offerings that include the credit. A Hyundai dealership in Massachusetts this month was offering a two-year lease deal of $413 a month for an electric Kona SE, a small SUV, including a $7,500 EV “lease bonus.” The offer ends on Sept. 30.

Here are some questions and answers about buying or leasing a car:

Q: Can I lease a used car?

A: Leases are typically reserved for new cars, but some carmakers with “certified” used car programs may offer leases.

Q: Do states offer incentives for electric vehicles?

A: Many states have tax credits or other incentives, like rebates to help pay for installing home chargers, that can help with the cost of an EV. You can search by state on the federal Energy Department’s website.

Q: What’s the annual cost of owning a car?

You’re not done spending after you drive your car home. The total cost to own and operate a new car is about $12,300 a year, or $1,025 a month, including finance costs, depreciation, fuel, maintenance and repair, insurance, tires and other costs, according to the latest analysis from AAA, the automobile owners group.

EVs can cost up to $44 more per month on average to insure than gas-powered cars because “their parts are scarcer and more expensive in general,” the National Association of Insurance Commissioners said earlier this year. As EVs become more common and their parts more easily accessible, their insurance rates may drop, the association said.

This article originally appeared in The New York Times.