Should You Buy Or Lease A Car?

Recently, I had to shop for a new car, visiting eight different dealerships. For many people, this is one of the most expensive purchases they will make. The average price for a new car is $32,086. The total average cost to own a car (gas, maintenance, insurance, finance charges) is $8,876 per year.

You can choose to either lease or purchase your vehicle. There are advantages and disadvantages to both, and in the end it depends on your personal situation. When you lease a car, essentially you are renting from the dealer for a set period of time. Below are some questions that may help you decide what is best for you.

• Do you always want the latest and greatest technology and safety features? If yes, you may want to lease. The average lease is 36 months, while the average car loan is 65 months. If you trade in or upgrade cars frequently, the value is unlikely to cover the remaining loan balance. With a lease, you can move on every few years.

• Do you want a higher-priced car but can’t afford to buy it? (I hope this isn’t you!) If you absolutely have to drive something you can’t afford to buy, then leasing is the way to go. You may not have to put money down or will be lower than the down payment for purchasing a car. In most states like Hawaii, you pay the tax on the lease payments, not the entire vehicle price.

• Will you drive more than 15,000 miles a year? If yes, you will want to buy. For a lease, you have a limited number of miles you can drive per year, typically 12,000 to 15,000 miles. If you drive more, it can cost 20 to 30 cents per mile.

• Can you legitimately claim your car as a business expense for taxes? If you can, then you can write off your lease.

• Do you want more flexibility with your car? If yes, then you may want to buy. If you change jobs and have to drive more, you are stuck in your lease contract or will have to pay stiff penalties to get out. Also you have to return the car in good condition in a lease and can’t customize your vehicle. If you do want to get out of a lease, you can go to sites like swapalease.com and leasetrader.com to find someone who will take over your lease at a small cost.

• Are you worried about expensive repair costs? Leasing may be better for you. Most new-car warranties last as long as the typical lease, so you don’t have to worry about repairs. If you own a car that is outside the warranty, you will have to pay out-of-pocket.

• Is your priority to not have debt or make car payments? Then buying is for you. If you plan to keep your car for as long as you can and want to save money, then buying a car gives the most flexibility and costs less.

There is one more option. At the end of the lease, you can “lease to buy” based on the residual value. You then can decide to buy it or just get another one. The important thing is to make sure you spend time to do the research to buy the right car for you. Consider the pros and cons carefully, crunching the numbers both ways to see the comparison.

david@artofthinkingsmart.com