How to Evaluate a Car Lease Versus Purchasing a Car

When you are ready to acquire an automobile, two of your choices for financing are leasing and buying. When you examine the different methods of financing your vehicle, you will find that each option has pros and cons. In certain instances, you can save money with one option or the other. Choose the option based on your financial goals and adhere to the terms and agreements.

Mileage

When you lease a vehicle, you are limited in the number of miles you can drive per year. The allowance is usually 12,000 to 15,000 miles. If you exceed the allotted number of miles, the leasing company will charge you a fee for each mile. This amount can be substantial and when your lease agreement is over, you will incur a significant charge. When you finance an automobile, there are no restrictions in your contract regarding the number of miles you can drive.

Ownership and Use

Leasing allows you to have use of a car for a certain period of time, usually, about three or four years. After a lease is over, you return the car to the leasing company for another vehicle. When you buy a car, you are working toward ownership. Once the contract is paid in full, you own the vehicle.

Purchase Option

Buying a car through a lease is more expensive than purchasing it through traditional financing methods. If you decide to purchase your leased automobile at the end of the lease, you will have paid more than the book value of the vehicle. The salvage value is set at the beginning of the lease term and many times the dealer will inflate the value to make leasing look more attractive. When the salvage value is high your lease payments are lower. A lower salvage value gives you higher payments during the contract. Most people turn the leased vehicle in at the end of the term and lease another car.

Payments

When you lease an automobile, your payments are lower than your payments would be if you purchased an automobile. Many people will lease cars because it allows them to have use of an automobile that would otherwise be unaffordable if they were to purchase it.

Loan/Lease

With a lease, you are stuck with the car for the entire lease period. If you decide to terminate the lease agreement early, you will pay an early termination fee, which could prove to be costly. This fee will likely wipe out any savings you were looking to receive from leasing. When you buy a car, your loan contract agreement is set for a certain number of years but there is no early termination fee. If you decide to turn the car in as a trade, you may do so. The remaining loan amount will be figured in with the new loan.

Source:
http://www.automotive.com/auto-loans/36/loan-tips/car-leasing-vs-car-buying.html