Buying Vs. Leasing

By Chandra Orr

August 9, 2012 5 min read

Shopping for a new car? To buy or to lease, that is the question.

Purchasing a new vehicle is more economical in the long run, but leasing makes it easier to get more car for your money, according to Philip Reed, senior consumer advice editor for Edmunds.com.

"At the moment, there happen to be some very good lease deals available," says Gordon Blau, editor of AutoBuying101.com. "There has been an overall increase in the value of used cars. This in turn raised residual prices -- the pre-arranged price that the leased car is worth when returned -- thus dropping monthly payments."

*Consider Leasing If...

--You want a lower monthly payment.

Leasing typically offers lower monthly payments, a lower down payment and lower repair costs than buying -- and as with a purchase, the price is flexible.

"Car dealers will try to get you focused on the monthly payment, but even with leasing, there is a negotiable price for the car," Blau says. "On the leasing agreement, it's referred to as capitalized cost. That should be your starting point in negotiating a lease. The lower you get the capitalized cost the lower your lease payment will be."

Beware the hidden costs, though. If you cross the mileage limit or put excessive wear on the car, you'll pay a penalty at the end of the lease -- and you still pay taxes, licensing fees and insurance.

Also keep in mind that, with leasing, the dealer essentially owns the vehicle, and depending on your down payment, you might not have a lot of equity in the vehicle when it's time to turn it in. So if you're thinking about leasing as a means to ultimately purchasing the vehicle, you'll likely pay more over the long run than if you'd taken out a traditional bank loan to finance the vehicle.

--You long for a new car every few years.

Can't resist the lure of the showroom? If you get a thrill out of having the latest and greatest vehicles, leasing is a great way to trade up every few years.

"If you start getting bored driving the same car after a few years, leasing may be the better move for you," Blau says. "Most leases are in the three-year range, so just as you're starting to get tired of the car, you simply turn it in."

If you're looking for an even shorter lease, consider sites like SwapaLease.com where drivers can take over leases from others looking to get out of their contracts.

--You don't put a ton of miles on your vehicle.

Leases typically limit mileage to 10,000 to 15,000 miles a year and charge for overages. If you have a short commute or only use the vehicle for running errands, the mileage caps provide plenty of leeway. But if you spend a lot of time traveling for business or just yearn for that annual cross-country road trip, you're probably better off buying.

*Consider Buying If...

--You crave flexibility.

When you purchase a new car, you own the car. Drive it as long as you like, and sell whenever you want. Even with a three- to five-year bank loan, you build equity as you make payments.

"When you lease a car, you never own it; you simply pay a 'rental fee' every month to drive it," says Steve Hague, owner of national car buying service ProAutoBuying.

"If you plan on keeping a vehicle for more than three years, it usually always makes more sense to buy it. Even if you decide at the end of the third year that you want to sell it, you will either have paid it off or you'll be close to having done so," Hague says.

--You typically drive the same vehicle for more than three years.

"If you're the type that is OK with driving the same car for six years or longer, buying a car is the more fiscally responsible option over leasing," Blau says. "The longer you tend to keep a car the better off you are buying."

"The No. 1 reason to buy a car over leasing is that when all is said and done, you actually own the car. You'll have higher payments over a longer period of time, but in the end, the car is yours to keep," Blau explains.

--You put a lot of wear and tear on your car.

Long-distance commuters and those who live behind the wheel are better off buying -- and if your current vehicle looks like a disaster zone, complete with coffee-stained seats, a trunk full of dirt and grime, and dents, dings and scratches from bumper to bumper, you definitely want to skip the lease. With a lease, normal wear and tear is expected, but you'll pay for excessive damage.

"If you tend to treat your cars poorly, you may not want to lease," Blau says.

Still can't decide? Run the numbers. Edmunds.com calculators help drivers estimate lease payments based on purchase price, lease length, interest rate and more -- and create side-by-side comparisons to see what it would cost to buy the same car.

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