Cars: Leasing vs. Buying
By Kristi Vaughan
Should you lease or buy a new car? As tempting as the ads might be, it is not just a question of monthly payments. The answer also depends on factors such as length of ownership, maintenance habits and personal convenience.
Differences
The most obvious difference between leasing and owning is ownership. If you buy the car - even if you are financing it through a loan - you own the car until you sell it. With a lease, you have use of the car for the term of the lease. At the end of that term you return the car to the dealer. You then have the choice of leasing or buying a different car or buying the car you have leased.
Monthly payments also differ. When you lease a car you are paying for the car's depreciation during the term of the lease plus interest charges. When you buy a car with borrowed money you are paying for the entire cost of the car minus any down payment. The monthly costs to purchase a car most likely will be higher than leasing.
Mileage is another factor to consider when deciding whether to lease or buy. A lease agreement is based on a predetermined number of miles driven per year, usually 10,000 to 12,000 although you can pay more per month for a higher limit. If you exceed the maximum miles, you will pay an additional per mile cost. If you own the car a higher mileage affects only the car's trade-in value.
How well you maintain your car also can affect the leasing vs. buying decision. Those leasing the car to you expect a car to be well-maintained and will charge an additional fee at the end of the lease if there is excessive wear and tear.
For many people, an advantage to leasing is the convenience they find with leasing. This convenience can be the freedom to walk at the end of the lease term and not worry about resale. It also can be freedom from many maintenance bills since most leases are on new cars which should not need significant repairs.
Generally speaking, leases are most appropriate for people who:
- Want or need new cars
- Are looking for low, or no, down payments
- Want lower monthly payments
- Know what their annual mileage will be
- Maintain their cars