Should I Lease or Buy a Car?

By Deborah Nayrocker

Dear Deborah: My car is on its last leg (or tire). Should I lease or buy a new car? What are the advantages and disadvantages? — Renae

Answer: Consider the monthly payments you can afford and your needs.

Leasing a car is like renting a car, and you must return it when the lease ends (usually 2-4 years), unless you opt to buy the car. If you plan to buy it when the lease expires, you usually pay considerably more than if you had bought it originally.

If you want lower monthly payments for a new car, you may want to lease, since they are usually lower than car loan payments. You’re basically paying for the depreciation during the lease period.

If you lease up-front car costs can include the first month’s car payment, a capitalized cost reduction (comparable to a down payment), a refundable security deposit, taxes, registration, and other fees. Early termination charges can be quite costly. And if you drive many miles a year or you want to keep a car for many years, leasing probably isn’t the way to go. Most leases set a limit on miles you can drive, charging 10 to 15 cents per mile for going over the limit.

Should you decide to buy a car, you own the vehicle, not the leasing company. If you take out a car loan at the end of the loan term you have no further payments. Up-front costs to buy are the total cash price or down payment, taxes, registration, and other fees.

When doing your research for the car that’s best for you, check with your car insurer how much it will cost to insure. Insurance rates can vary, depending on the car make and model. These rates should be factored in along with your monthly payment costs, as well.

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Deborah Nayrocker is an author and columnist. She is the award-winning author of The Art of Debt-Free Living and Living a Balanced Financial Life.

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