Lease or Buy? Four Questions to Help You Decide
August 31, 2011
Leasing a car is a popular trend, reports Edmunds.com. More than one in four consumers in the U.S. now lease their ride—and it could be a sweet deal for you. You get to drive a new car every few years and you also might get a tax deduction if you’re self-employed.
But leasing isn’t for everyone. Studies show that leasing is more expensive for most drivers than buying a car over a 10-year period.
So should you lease or buy? What’s the right choice? Before deciding, you should know that leasing is like renting. When the lease expires, you give the car back. If it’s in good condition and you’ve complied with the lease terms, you usually owe nothing. But you also own nothing, so you will have to buy or lease another car. In some cases, you have the option to buy the car at the lease-end price.
Leases can be tricky, especially with new options such as shorter lease periods and low monthly payments. But, if you 1) typically trade in your car every few years, 2) don’t pile up too many miles and 3) like having the latest and greatest tech features, then leasing might be for you.
Start by finding a reputable dealer you’re comfortable working with. Make sure you know what you’re getting into. For example, be aware that advertised lease rates do not include sales taxes and other charges such as your down payment (called the drive-off fee). Interest rates and your car’s mileage also will affect your total costs.
Here are the key questions to ask when negotiating your leasing contract.
What is the lease term? Make sure your lease term does not exceed your bumper-to-bumper warranty coverage.
What is the maximum mileage you can drive during the lease term without having to pay extra? A typical lease will allow you 36,000 miles for three years and charge you 15 cents per mile after that. That can really add up if you’re a road warrior.
Does your contract include gap insurance? Gap insurance covers the difference between what your car is worth and what insurance companies will pay if your car is totaled.
Does the lease require a large down payment? If the low monthly payment seems too good to be true, it’s probably because your drive-off fees are high.
Once you’ve covered the basics, use this helpful calculator to get a better idea of your actual leasing costs. If the numbers add up and you like the idea of having a new vehicle every two or three years with no major repair risks, leasing can work for you.
Disclaimer: The author is affiliated with Allstate Car Insurance. SocialMoms was not compensated in any way for this article. This article was edited by SocialMoms staff to meet our editorial and quality guidelines.