January 11, 2013 - To start off, I am going to be perfectly honest with you. There is no direct answer. Like most things in life this decision takes into account many different attributes, and the answer will vary depending on each person’s situation and personal preferences. With that said, I hope the following provides you with some helpful information as to what might be the best choice for you.
You Should Buy If…
1. You are not in a stable financial situation. You may think since monthly lease payments are cheaper than loans, the opposite should be true but it is not. If you are not stable and you have to exit your lease agreement prematurely you face severe penalties. Normally, you would have to pay the remaining payments minus expenditures for depreciation that hasn’t occurred yet. This all means you’re not so stable financial situation just got a lot more wobbly.
2. You drive a lot. The average lease is for 12,000 miles a year. The average person drives 15,000 miles a year. Uhoh, this means most people go over their allotted miles and have to pay around a 13 cent per mile penalty. If you do drive a great length and still prefer to lease make sure to buy the extra mileage at the beginning of the lease. It is cheaper to buy them at the beginning than it is to pay for the penalty at the end.
3. You want to Customize. If you want to lower you Honda or lift your Chevy, the dealership will not allow this if you are leasing. If your own a car you can do whatever you want with it. So, go ahead and paint that warrior Viking on the side of your Nissan Quest.
4. You want to end up with an asset. When you buy your car it is yours. You can sell it whenever and to whomever you want. It’s very similar to renting an apartment verses buying a house. After you are done renting you have nothing to show for it. Those monthly rent checks are not going towards you owning that apartment. When you buy a house or car you have that asset to sell when you want to move or get another car.
5. You are tough on your vehicles. If you are in charge of the kiddie carpool or have a job on a construction site you probably don’t want to lease. You don’t want to have to pay for all those spilled Slurpee’s and running over construction debris, when you return your leased car.
You Should Lease If…
1. Having a new car is important to you. If having the newest ride on the block is something that you cherish than leasing is for you. Every few years you get a new car and that new car smell! Since, lease payments are usually cheaper you can also get more car for your buck.
2. If you own a business. If you own your own business and the car is going to be used for business purposes you can write most of the lease off. If you buy your vehicle you can only write off a proportion or take a mileage deduction.
3. Don’t want to hassle getting rid of your car. When time comes for a new car a lot of people hate having to go through the hassle of selling their old one. With a lease you don’t have to worry about it. You just take in your lease and get a new one, or buy the leased car from the dealership.
4. You are good at investing. In the short-term. leasing is less expensive. If you think you can take what money you saved by leasing and invest in something that will earn you more money, go for it. My economics professor called this “Opportunity Cost.” Is the opportunity of owning your own vehicle worth the present cost? Or, could you take what you’d save by leaseing and make more money in the long run somehow?
A lot of the aspects of buying versus leasing depend on many factors which are constantly changing, including interest rates and tax advantages, warranty length, mileage restrictions (some leases set the maximum mileage at 10k per year), maintenance requirements, car care. There is no right answer. Just take the time to find out what is best for you.