Should You Lease or Buy a Car?

by Team Dinks on August 19, 2010 · 0 comments

red car interior

Even though the decision to buy or lease a car has definite financial implications, it’s not the only factor to take into consideration. Your lifestyle also plays a big part in the decision. What’s right for one person can be totally wrong for another.

Someone who’s a fan of leasing might argue the following eight points:

  1. You have lower and more affordable monthly payments.
  2. You get a brand new vehicle every few years without the hassle of having to worry about trade-in values or haggling with buyers.
  3. You get to drive the latest models with the best safety and comfort features.
  4. You drive a car that’s in great condition without worrying that a major repair will be needed in the future.
  5. Most repairs are covered if your lease term lasts just as long as the manufacturer’s warranty.
  6. If you drive a predictable number of miles and return the car at the end of the lease period with minimal wear-and-tear, you come out ahead.
  7. If you have steady income, it’s unlikely that you’d need to terminate a lease early.
  8. You may pay more in the long run, but all the benefits of leasing are worth it.

On the other hand, a fan of buying could argue these eight points:

  1. You save more money in the long run, so making higher monthly payments is ultimately worth it.
  2. Each payment allows you to build up equity for the future when you decide to sell the car or to trade it in
  3. Once you pay off a car, you can drive it debt-free while saving or investing the equivalent of the old loan payment. Plus the longer you drive it, the less it costs.
  4. Buying allows you to drive as many miles as you want and to use a car or truck without worrying about keeping it in perfect condition.
  5. When you own a vehicle you can customize it any way you like.
  6. The lower cost of ownership makes the risk that major repairs could be needed after the warranty expires, worth it.
  7. You get to take advantage of a huge depreciation discount when you buy a vehicle that’s about two to three years old.
  8. Buying is better if you have an unstable career or may need to relocate out of the country. Ending a lease early means getting stuck with the total payoff in addition to early termination charges.

Know Your Financial Objective

So what do you think? Are you a leaser or a buyer? I always buy used luxury cars and drive them right into their cold, clunky graves.

If long-term cost savings is your primary financial objective then it’s usually best to buy and drive a vehicle until, as they say, “the wheels fall off!” Or drive it at least until the repair costs begin to exceed the cost of replacing it. That’s the best way to save money in the long run (unless you have a really great investment plan for the money you could save by leasing).

But if you like the benefits of leasing make sure you understand what those conveniences will ultimately cost you. The biggest factor that determines the cost of an auto lease is the depreciation that’s expected to happen during the term of the lease. Different makes and models of vehicles depreciate at very different rates. So the best lease deals can potentially be found for those models that have the lowest depreciation rates. You may have the option to buy the vehicle at a price set in the lease. That might be a good idea if the vehicle is worth more than the agreed upon purchase price and a really bad idea if it’s worth less.

Use a Lease vs. Buy Calculator

You can use a Lease vs. Buy Calculator to compare any lease deal with a similar purchase loan. After answering a few questions about the offers you’re considering, the calculator will compare monthly payments and total costs of the deals.

(Photo by roberthuffstutter)

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