8 ways to decide whether to buy or lease
With auto manufacturers offering tempting sales promotions and sweetened lease terms, it can be difficult to decide whether to buy or lease. Before you decide, consider these eight questions.
Do you want the car for just a few years, or longer?
If you plan to keep the car for many years, it is almost always cheaper to buy it up front. This video shows a cost comparison between buying and leasing. However, if you think you’ll keep the car for just a few years, you might consider leasing it.
Are you a road warrior?
A big factor in deciding to buy or lease is how much you drive. Leases generally come with mileage limits from 10,000 to 15,000 miles per year, or 36,000 miles for the life of a standard three-year lease. If you go over the allowable miles, you pay for each additional mile when you turn in your car at the end of the lease. If you drive 30 miles to and from work, those mileage charges can add up quickly. And if you have kids, ferrying them back and forth to school and other activities can also increase your mileage.
To figure out how much you drive annually, track your miles during a typical week and multiply by 52. Add in any trips and vacations you may have planned. If that number is high, buying is probably a better option.
Tip: If you drive a lot but want to lease, you could opt for a high-mileage lease agreement. The monthly payment is higher, but the extra miles cost less up front than if you go over the mileage cap.
How hard are you on your vehicle?
Returning a leased car in poor condition can result in wear-and-tear penalties. Keep in mind that children and pets tend to put more wear on a car. In that case, buying might make more sense.
Tip: If you lease, consider wear-and-tear insurance.
Do you love the latest gadgets?
Can’t wait to try the latest Bluetooth technology? Want the newest sensor or camera? A lease may be your best bet. You can trade in your car for a new model every few years and always enjoy state-of-the-art features.
Do you anticipate any major life changes in the near future?
Consider your job security and financial stability over the next few years. If you lose your job but you own your car, you can sell it if you can no longer afford monthly payments. In the same scenario, a lease can be challenging. Some manufacturers offer the option to sell or transfer your lease but will likely charge an early termination fee. If you anticipate relocating to a new state, your lease’s monthly payments may change due to variations in sales tax.
Does the deal seem too sweet?
Some dealers entice drivers with leases that require no money down, but those offers come at a price: You pay a higher monthly payment, which often ends up costing you more overall. On the opposite end of the spectrum, some dealers charge low monthly payments but require high down payments.
Tip: Read the fine print. Figure out what you can afford to pay up front, and do the math to figure out how much you pay overall.
Have you looked beyond the monthly payments?
While you may pay less on a monthly basis to lease rather than buy a car, you usually save money in the long run if you buy. Consider the down payment and the buyback price of the leased vehicle, which is how much it would cost to buy the car when your lease ends. Even if you don’t think you’ll end up buying the car, the buyback price is important: Generally, leases are calculated by subtracting the buyback price from the selling price. Make sure you’re comfortable with both numbers. Also estimate the cost of repairs and insurance. For example, if you buy or lease a new car, it will be under warranty, so you save on out-of-pocket repair costs.
Tip: You can negotiate the sticker price for a lease just as you would for a purchase. If a monthly payment seems high, speak with the dealer about reducing the price and take advantage of any available rebates. You can also lower your monthly payments by making a larger down payment.
Have you considered a used car?
A used car is usually much less expensive than a similar new one, whether you choose to buy or lease it. This means lower monthly payments. Insurance costs for used cars may be lower, too, according to Edmunds. However, a car that is out of warranty may have higher repair and maintenance costs.
Keep in mind it can be challenging to determine a car’s depreciation—how much its value has dropped since it was new. This means you could end up paying more than the car is worth.
Whether you choose to buy or lease, be sure to do the math before you make your decision. It’s important to understand the full impact your new car will have on your finances.
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