Decide Whether to Lease or Buy a Car

<math>Insert formula here</math>Leasing can put you into a more expensive or newer car than you might otherwise buy. All things being equal a long term finance will produce a similar monthly payment as a short term lease. If you budget a monthly payment consider what you pay and for how long. It may make sense to be making a payment on a newer car each month than the same payment on a vehicle that's wearing out.

Steps

  1. Consider your trade cycle history. Chances are you'll keep the next car about the same length of time as before. If it's long term, 5 or more years, consider buying. You'll generally pay less per year that way. If, on the other hand, you like to drive the latest models, leasing may be cheaper and simpler than buying and trading every 2-3 years. If you are going to use the vehicle as a work truck, for example and are likely to damage the vehicle, consider a commercial lease. Your accountant can provide some tax advantage options.
  2. Estimate what you can spend on a down payment if buying, and how much you can spend per month on monthly payments. NEVER put a down payment on a lease, just to lower the monthly payment, only the true administrative fees.
  3. Some leases may allow you to spend less monthly than buying. However, you will probably pay more per year on a long-term purchase, since you are paying for all depreciation. Make sure to "Bottom Line" both.
  4. Take all the payments and up front charges and see totals before you decide.
  5. Term, options, and next purchase intentions should factor in your decision. It's OK to spend more either way as long as it gets you what you want.
  6. To save money in the long term, consider buying or leasing a car that's just NOT NEW. If it's been well taken care of, you may pay less and still get many good years out of it. Used cars also tend to be cheaper to insure.
  7. Leasing allows you to have more car now than you would be able to buy for the same dollars. It's often better to simply buy a car that you can actually afford. When you trade in a car you own, you get to keep the 'equity' that you have left, and apply that as a down payment on a new car.
  8. Determine the mileage you expect to put on your car while you own it over the next 2-3 years. Make sure that mileage is figured in the lease calculation. If you turn in a lease to the dealer he has no argument as to the value of the car or your rights to potential equity. If the vehicle has "equity" it's yours to pocket if you choose.
  9. If the average market price is less than the value of the vehicle on the lease, then let the lessor take it back. Your payments would have been higher if they had known the value to be lower.
  10. If you're considering buying a used car, the warranty might be either expired or close to expiring so ask about an extended service contract.



Tips

  • More and more people are using cars for business purposes. If you are, consult your tax accountant for the "best for you" strategy.
  • Leasing and buying each have advantages and disadvantages. Consult your loan officer or accountant for advice.

Warnings

  • If you total a car, or it is stolen and never recovered, you may be financially liable for the balance of payments and it's residual value if leased. Many manufacturers leases include "GAP Protection," which covers the difference between what you owe and what it's worth. Some leases offer this as an option. If you are offered this as an add on, be sure to negotiate it's cost if you can.
  • When leasing, there are options on mileage, and costs are paid for exceeding the mileage. This can be a concern for those who take long trips or have longer commutes, remember no matter who owns the car at the end of a purchase or lease, the car has the same value. Many leases have a yearly mileage cap and require the lessee to pay a fee per mile above that amount at the end of the lease or annualized if the lease is ended early. Some companies offer a cash rebate if you have a high-mileage lease and return the car with fewer than the maximum miles driven on it.
  • Even the slightest damage to your car (sometimes even minor cosmetic damage) may need to be fixed at your cost by the end of a lease. However leased or purchased ANY defect noted by the appraiser will cost the owner. The difference between normal wear and tear and unusual damage is in the eye of the beholder or the person wanting the next sale.

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