Should You Lease or Buy Your Car?

Is leasing a car right for you? This question is hard to answer. It really depends on your lifestyle and your preferences.

Certain lifestyles may work better with leasing than others. For instance, if you entertain business clients, leasing allows you to drive a luxury vehicle for less money (and there may be a tax write-off for certain professions). Other people just like to drive a brand-new car every two or three years. So ultimately, leasing isn't only a dollars-and-cents question — it's about personal tastes and priorities.

However, for some people, everything is a dollars-and-cents issue. If you are one of those people, or would just like to see how leasing a car stacks up against buying, we suggest you try our Auto Loan and Auto Lease calculators. After selecting a car, you can see an estimated leasing payment, an estimated loan payment and which financing method is recommended. Furthermore, you can see how your payment will change if, for example, the length of the loan is extended or the down payment is increased.

Pros and Cons of Leasing a Car
The lists below summarize the pros and cons of leasing vs. buying.

Advantages of Car Leasing

• Lower monthly payments
• Lower down payment
• You can drive a better car for less money each month.
• Lower repair costs (With a three-year lease, the factory warranty covers most repairs.)
• You can more easily drive a new car every two or three years.
• No trade-in hassles at the end of the lease
• You pay sales tax only on the portion of the car you finance.

Disadvantages of Car Leasing

• You don't own the car at the end of the lease.
• Your mileage is limited to a set amount, typically 12,000-15,000 miles a year (excess miles are paid for at the lease termination).
• Lease contracts are confusing.
• Leasing is more expensive in the long run (as opposed to buying and driving until the wheels fall off).
• Wear-and-tear charges can add up (paid at lease termination).
• It's costly to terminate a lease early if your driving needs change.

Advantages of Car Buying

• Pride of ownership — you can modify your car as you please.
• Car buying is more economical in the long run unless you buy and trade-in regularly.
• No penalty for driving excess mileage
• Increased flexibility — you can easily sell the car whenever you want.

Disadvantages of Car Buying

• Higher down payment is generally required.
• Higher monthly payments
• You're responsible for maintenance costs once the warranty expires.
• Trade-in or selling hassles when you're ready to get rid of your car
• More of your ready cash is tied up in a car, which depreciates, rather than an investment that appreciates.

Summary
In a nutshell, leasing makes it easier to get more car for less money. You are essentially paying for a portion of the car, instead of buying the entire vehicle. So, like many things, leasing looks great in the short run. But if you take the long view of economics, you will see that leasing will eventually be more expensive. It is more costly because once you begin leasing, you wind up leasing again. This means you will always have a car payment and never own anything.

Now consider the person who buys a car. At the end of five years of car payments, the car now belongs to him or her. It might not have much value on the open market, but if you're willing to drive it for several more years, it becomes nearly free transportation until the wheels fall off.

It is ultimately up to the smart car buyer to weigh the pros and cons, determine what their needs are, and what best suits their lifestyle.

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