Overhaulin' - To lease or to buy a car?

To lease or to buy a car?

Im looking into getting a new car and i would like some info from you guys as to which is better, to lease or to buy a car. im a big car guy and having the newest car is always great, so for me i think leasing would be better cause i could get a 2011 car for about 200-300 a month.or i could buy a car thats about 3-4yrs older for the same monthly payment. in general i dont drive a lot just to and from work (5-10 miles/ day) and maybe like once or twice a year a road trip under 1000 miles. so im asking for opinions from people as to which one would benifit me more. if you could list the pros and cons for each that would be very helpfull. THANKS!!

Public Comments

Leases and purchase loans are simply two different methods of automobile financing (leasing is NOT renting). One finances the use of a vehicle; the other finances the purchase of a vehicle. Each has its own benefits and drawbacks. Is having a new vehicle every two or three years with no major repair risks more important than long-term cost? Or are long term cost savings more important than lower monthly payments? Is having some ownership in your vehicle more important than low up-front costs and no down payment? Is it important to you to pay off your vehicle and be debt-free for a while, even if it means higher monthly payments for the first few years? When you buy, you pay for the entire cost of a vehicle, regardless of how many miles you drive it. You typically 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, based on your credit history. You make your first payment a month after you sign your contract. Later, you may decide to sell or trade the vehicle for its depreciated resale value. When you lease, you pay only a portion of a vehicle's cost, which is the part that you "use up" during the time you're driving it. Leasing is not the same as renting. You 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 pay when you buy. You make your first payment at the time you sign your contract — for the month ahead. At lease-end, you may either return the vehicle, or purchase it for its depreciated resale value. Buy vs lease example buy lease car As an example, if you lease a $20,000 car that will have, say, an estimated resale value of $13,000 after 24 months, you only pay for the $7000 difference (this is called depreciation), plus finance charges, plus possible fees. When you buy, you pay the entire $20,000, plus finance charges, plus possible fees. This is fundamentally why leasing offers significantly lower monthly payments than buying.
Leasing is only available to maybe the top 30% of credit customers. That leaves most young people out. Not to mention its the most expensive way to drive a car.
Leasing can be good for the right people. Essentially, in a lease, you never "own" the car. You make payments for 2-3 years, then hand the car back. Think about it almost like a long-term rental. There are some advantages to leasing under the right circumstances. First, if you trade out of cars every 2-3 years, it might be right for you. In a lease, you have a contract for a fixed amount of time. I discourage leasing past 3yrs - 2 is better. In a 'loan', after 2 yrs, if you try to trade you will probably be upside down, and owe more than the car is worth. So, in order to get out of it, you have to have a lot of cash, or finance that negative on the next car. The contract will tell you that your payments are $x per month plus tax. At the end of the term, you will have a residual value for the car. The lease company basically says "In three years, we feel this car will be worth $Y" You have the option to buy the car at the end of the lease for that amount. If you are in love with the car, or it is worth well above the residual, you may want to consider that. However, in most cases, you simply hand over the keys and walk away. In a lease, there is a specified amount of mileage. Most leases are constructed around 12K or 15K miles per year. If you go over the mileage, there will be a per-mile penalty at the end of the lease. So, if you drive a lot, it may not be for you. Leasing typically allows a person to get a nicer car for the same payment as a lower-end car on a loan. that is because of that residual. You are only "financing" the difference between sales price and residual. In a loan, you are financing the entire purchase price. In other words, if a car has a sale price of $25,000. on a three year lease, lets say the residual is $15,000. You are only "financing" $10,000 for 3 yrs. If you were to buy that same car, you would finance $25,000 either for a longer term, or a much higher 36 month payment. Lastly, in a lease you pay less sales tax. In a conventional purchase on that $25k car, you pay tax on the whole 25,000. In a lease, you pay sales tax on the monthly payment. In other words, your payment of $300/month is actually $300+sales tax. BUT you are only paying tax on the leased amount - in the earlier example you are only paying sales tax on $10,000. To those who say "never lease" -- read this forum for 30 mintues. For every lease 'horror story' you read, you will see 20 people who are upside down on a 6 yr purchase and no way out. The key is to be thoroughly informed about the pros and cons of both, and make an educated decision based on your needs and lifestyle. Times leasing is good: You trade cars ever few years, you dont drive more than 12-15k per year, you want to put less down Times it is bad: You like to keep cars a long time, you drive a lot, you want to put a lot of cash down. Hope that helped some