Should You Buy a New Car or Lease One?

Have you noticed that lately almost all of the ads on television for cars or SUVs show leasing rates instead of the Manufacturers Suggested Retail Price (MSRP) like they used to do? Have you wondered if you should maybe lease a car next time instead of buying a new or used one? Have you wondered if it would be cheaper? The intent of this article is to give you the latest information pertaining to leasing versus buying a new car.

First of all, the obvious. If you buy a car, the plan is to pay for it until you own it outright. At the end of the payment period, the car is yours to do with as you choose. With leasing on the other hand, what you are in effect doing, is borrowing someone else's car and paying for that service.

With both options there is usually some money you have to put down up front. If you buy a car, you can put down a little or a lot, depending on your situation and the offer from the dealership. You usually also have to pay taxes, tags and title fees. If you lease a car on the other hand, you still generally have to pay taxes, tags and title fees, and generally one month of lease fee in advance.

So, what's the practical difference? In real terms, the difference is in how much you pay every month, and how much car you get for what you're paying. Today, most people lease a car, rather than buy one, because it allows them to drive a more expensive vehicle than they could afford to buy. While it's true you could lease the same vehicle you would buy, most people don't. What they end up doing is spending the same amount each month on leasing fees as they would on payments for a new car. But they get to drive a much nicer, more expensive car, which is important to a lot of people.

But that's not all. A lot of people don't know that there are mileage limits when you lease and if you go over that mileage, you have to pay per mile over. Usually ten or fifteen cents per mile over. This can have two effects. The first is that you'll wind up driving the car less than you want too. The second is you'll wind up with a lot of extra expense when the lease expires. If you buy the car outright instead, however, you don't have to pay any extra to anybody no matter how many miles you put on it. You will however reduce the value of the car, which might mean less resale value if that is something you will be considering.

In addition to mileage restrictions, leasing companies also generally charge for wear and tear on the vehicle you lease, which is unfortunately in most cases left to the leasing company to decide. You, the lessee are charged when the lease term expires, to repair the wear and tear on the vehicle. If you buy a car instead, of course, any wear and tear on the vehicle reduces its resale value.

Another thing a lot of people don't realize is what happens if the car is totaled in an accident. If you buy the car, and have proper insurance, your insurance company will give you the amount listed in the infamous blue-book, which in most cases should cover replacement costs for the vehicle, depending on how long you've had it. On the other hand, if you total a leased vehicle, although your insurance company will still give you blue-book costs, it's very likely that this will not cover the cost of the lease. For example, say you lease a car for three years and total the vehicle in year one. You still owe for years two and three, which are very likely to add up to more than the blue-book value of the car, and you will be responsible for the difference. In many cases, this amount can add up to more then ten thousand dollars or more.

There's another thing you might want to consider also. If you are unfortunate enough to lose your job due to layoffs, firing or health injuries, etc. you will likely lose your ability to pay for your vehicle. If you are leasing a car, you'll still be liable for the rest of the lease term, which can be months or years. Failure to do so will likely ruin your credit for years to come. On the other hand, if you buy a vehicle, you can likely sell it for enough to pay off most of the debt. Or, better yet, if you've already paid it off, you'll still have a car while out of work.

Another thing you might consider is the value you keep with a car after it's paid off, versus what you get if you lease. When you buy a car and make all the payments, you're done. The only additional costs are maintenance. This means if you keep the car after it is paid off, you have a vehicle for no cost. In some cases, your car might last several more years, especially if you maintain it well. If you lease on the other hand, once the lease term expires, you have no vehicle to drive, unless you either buy or lease another car. You generally do have the option of buying the vehicle you've just been leasing, but in most cases, you will pay more for it than you would a comparable vehicle bought used at a dealership. A recent poll has shown that most people that lease, do so again after the term expires, because they've become accustomed to driving a car that is more expensive than they can afford to buy. So they lease, and lease again, and in effect, have leasing payments indefinitely. Financially, this is generally not considered a sound plan when you consider the additional pocket money car owners have once they've paid off their vehicle even when you include maintenance costs. Some even put away the money they were spending on car payments for a long enough time to save enough money to buy their next car without a loan.

In short, most financial experts agree that leasing a car is not fundamentally sound. The only reason to do so is if the status you receive through driving a car that is more expensive than you can afford to drive more than offsets the loss of financial gain you would receive in purchasing a vehicle.