Wondering whether to lease or buy your next car? There are a lot of variables to factor into your decision—and not all of them are strictly financial
Why lease? The conventional wisdom says leasing allows you to drive the industry’s newest, hottest cars. (BMW recently led the list of the most requested vehicles at LeaseCompare.com.) You can have a new car for a lower monthly payment, and you could save or invest the difference. Moreover, if you use the vehicle for work, writing off a lease payment may be easier than the calculations for a vehicle you own. It’s noteworthy, too, that car leases don’t appear on your record as credit debt.
Basically, you rent the car for the duration of the lease, and pay only for depreciation. For example, if you lease a $50,000 car that will have an estimated resale value of $35,000 after two years, you’re responsible for the $15,000 difference (the depreciation) along with finance charges and fees.
Because leased vehicles tend to be new or late model, you shouldn’t face hefty repair bills. However, most leases cover only the first 12,000 to 15,000 miles per year; drive farther, and for each additional mile you’ll owe as much as 25 cents when the lease ends. If you drive a lot—say, 20,000 miles or more each year—any benefit of a lease’s lower payments is likely to be outweighed by mileage charges and you’re probably better off buying. Breaking the lease—that is, returning the car early—comes at a great cost. And when you turn in the car, you’ll be assessed for any wear and tear that’s out of the ordinary.
Why buy? Again according to the conventional wisdom, the overarching benefit of buying is financial. When a lease expires, you have to turn in the car or purchase it for its residual value. If you buy at the outset (or finance the purchase), the car’s yours, and when interest rates are low, that’s generally cheaper than leasing. And it’s more flexible—you can sell or trade the vehicle whenever you want.
But what if your car seldom makes it out of the garage? You have a short commute to work, or to the train station. Yet you like to drive, and enjoy the thrill of piloting a high-end sports or luxury model. You could lease an expensive car, turn it in when the lease expires, and replace it with another leased vehicle, guaranteeing you’ll always have a car payment. Buying could make more sense. Once any loan is paid off, no more payments, and your lightly driven favorite ought to last for years. And if you sell or trade, you should get a good price.
You may also want to consider buying a car that’s just a year old or two. Much of the depreciation in a car’s value occurs in its first year. So buying an almost new car often makes good financial sense.
The bottom line? The lease versus buy decision is as much a lifestyle choice as a financial one. You can run the numbers for yourself by using a calculator on the Web. For more details, including financial calculators, visit: www.cars.com, www.leaseguide.com, or www.edmunds.com. Or call and ask us for assistance.