Should I lease or buy a car?

When you are thinking about acquiring a new car you may be caught in the common dilemma: lease versus buy-or to lease or buy a car which is better? Everyone who has ever considered leasing has had this question cross their mind. And the answer is-it depends! There really is not a clear cut answer and it is impossible to simply say that one is always better than the other. The answer really depends on your individual situation, your income situation, what you want out of your car, and more. So, the following is a look at the two options, so that you can determine which fits your needs best.

Leases and purchase loans are two different methods of automobile financing. They can best be defined by saying that leasing finances the use of a vehicle while a purchase loan will finance the actual purchasing of the vehicle. Each of these options has its own benefits and drawbacks.

When you are making a "lease or buy" decision you need to not only look at financial comparisons but also at what you own personal priorities are. You need to examine what is important to you. Some questions to ask yourself include:

• Is having a new vehicle every two or three years with no major repair risks more important than long term cost? It is more expensive to lease in many ways because it is much like renting, however, with it comes the advantage of not really having to deal with problems because of age or mileage. So, it is a matter of priorities.
• Are long term cost savings more important than lower monthly payments? Often you can lease a car for a significant discount over what you would buy the same car for, as far as the monthly payment goes. For people with a limited room in their monthly budget, leasing may be more practical than purchasing, even if in the long run they spend far more.
• Is having ownership in your vehicle more important than low up-front costs and no down payment? There are always benefits to ownership, mostly which include having a hard asset, however, in some cases, coming up with the down payment, and upfront costs of ownership are incredibly difficult. So, leasing can be a more plausible and financially accessible way to get into a newer car.

• Is it important to you that you can pay off your vehicle and be debt-free for a while, even if it means higher monthly payments for the first few years? Of course leasing means you do not owe a debt, it is like rent. However, it also means you do not get long term value for your money. Buying on the other hand can result in higher upfront expenses, larger monthly payments, but ownership after a few years, rather than a continued payment.

So you can see that making the lease or buy decision is not clearly cut and dry. Part of the decision is financial, part of it is emotional, and part of it is merely a matter of priorities. For someone who wants to drive the newest model of car each year, buying is impractical, and costly, whereas leasing is a far better option. However, for others, the security of having ownership is more important. There are some other considerations that you should look at as well. Some of these are:

• Understand that buying and leasing are vastly different. When you buy a vehicle you are paying for the entire cost of it regardless of how many miles you drive it. You typically will make a down payment, pay sales taxes in cash or roll them into your loan, and pay an interest rate determined by your loan company that is based on your credit history. You will generally make your first payment a month after you sign your contract. Later, you can decide to sell or trade the vehicle for its depreciated resale value. On the other hand, when you lease, you will pay for only a portion of a vehicle's cost, which is the part that you "use up" during the time you're driving it. You do have the option of not making a down payment, you pay sales tax only on your monthly payments (in most states), and you pay a financial rate, called money factor, that is similar to the interest on a loan. You may also be required to pay fees and possibly a security deposit that you don't have to pay when you buy. You most often will make your first payment at the time you sign your contract for the month ahead. At lease-end, you can either return the vehicle, or purchase it for its depreciated resale value.

So after you know the ins and outs of leasing or buying the question remains is it better to lease or buy? It really just depends. Let's look at some situations that would warrant you lease it, versus those that would lean more toward you buying it.

• Lease your vehicle-If you enjoy driving a new car every two or three years and want lower monthly payments leasing is a better option. If you like having a car that has the latest safety features and is always under warranty then leasing is again the better option. If you don't like trading and selling used cars, or do not want to deal with the hassle of doing so, then leasing is your better option. If you are not worried about building ownership equity in a car and have a stable predictable lifestyle and drive an average number of miles than leasing would be for you. If you properly maintain your cars, are willing to pay more over the long haul to get these benefits, and understand how leasing works, then you should probably lease.

• Buy your vehicle-If you do not mind higher monthly payments and you prefer to build up trade-in or resale value (equity), and like the idea of having ownership then buy your car. If you plan on paying off your loan to be payment-free for a while and don't mind the unexpected cost of repairs after warranty has expired, then buying is the best option. If you drive more than average miles and prefer to drive your cars for years to spread out the cost you should also consider buying. If you like to customize your cars, expect lifestyle changes in the near future, and don't like the risk of possible lease-end charges-then you should buy your next vehicle.

When you lease a car you are usually given a mileage cap that you are limited to. This means that you can't drive over the allowed number of miles without paying a penalty. This is because the car is going to be sold off after the lease ends, and the dealer wants to keep the mileage at a place that makes it more valuable to sell. In addition, with a lease, you can't customize the car. If you were to get in an accident, or damage the car in any way, while insurance will likely cover it, you do have to report it to the company you lease from, and make sure that repairs, etc. meet their standards. In addition, if, let's say you get pregnant unexpectedly during the lease period, and you need to upgrade to a bigger car, you will usually have to pay a fine for breaking your lease early.

So, all in all, leasing affords you newer cars at a lower payment amount, and the flexibility of changing your vehicle choice every few years. Buying gives you a hard asset which you can consider your own, and once paid for you no longer have a monthly payment to make. Buying also means having to take full responsibility of problems that arise, whereas a lease can be returned at the end of the period, and the dealer may have to deal with potential problems.

There are pros and cons on both sides. Evaluate your lifestyle and priorities to determine which is going to best suit your lifestyle. Some people choose to lease, but end up buying the car at the end of the lease agreement because they really like it, and there are no other cars that they would rather have. Others lease a new car every few years to stay up with the latest trends. A business person using their car to entertain and impress clients may find leasing a more suitable option than say a soccer mom who needs a car for transporting children from activity to activity.

Because cars lose value, many say leasing is best. However, others would disagree and say that although cars lose value, you get little long term value for your money if you lease, so buying is better. That is a judgment call you have to make.