Your once reliable set of wheels is getting less reliable
lately, and you’re longing for that new car smell once again. You meander through
the local dealership lot trying to avoid the salesperson because you know the very
first question that they’re going to ask you is, “Do you want to lease — or buy?”
What’s the better choice?
The short answer is … it really depends. The longer answer depends
on your particular circumstances and priorities. Let’s drill down and look under
the hood (so to speak) of each option.
Pros: With a lease, you generally can drive a new car at a lower monthly
cost. The leasing process is perhaps less onerous than buying, and you can get
into a new car every few years. With a lease, you can score some deductions if the
vehicle is used for business. So, the bottom line is that you often get more new
car for a lower initial cash outlay by leasing, and you can enjoy that new car smell
every couple of years.
Cons: When you lease, you aren’t building any equity toward your next
vehicle. So you’re starting from scratch each time. Additionally, you may have to
contend with costly end-of-lease charges, mileage overage costs and incidental damage
charges. You may even have to pay for new tires for a car you turn in.
Pros: When you purchase a car, you know for certain the price you’ll pay
without having to wonder about unexpected fees down the road. You can also build
equity in the vehicle over time, which can be particularly beneficial if you intend
to keep the car and drive it long after the loan period. Plus, since it’s yours,
you can customize your rims, your stereo or anything else you want as you wish (as
long as its street legal). And you can sell or trade in your vehicle whenever it
suits you rather than at a predetermined end-of-lease date.
Cons: Buying is usually more expensive than leasing at the outset. And
you can’t just turn it back in and walk away — you eventually will have to sell
or trade in the car. Finally, if you buy new, you’ll take a big depreciation hit
as soon as you drive off the dealer lot.
Your Ride, Your Reasons
Getting back to the original question, if the goal is to spend as
little as possible to get into that new car, and you think you’ll be ready for another
vehicle in a few years, then leasing likely makes the most sense. However, if you
can’t wait to rebuild your engine and add a mega-sized subwoofer in your trunk —
and you want more control over when your next purchase may be, than buying new might
be right for you.
But remember that the real cost of a car is not only the price tag,
it’s how much it costs you during the entire time you own it, including
maintenance, gas, repairs and insurance. When analyzing the per-month cost of leasing
vs. owning, remember to amortize the equity you have in the car over the entire
period of ownership.
If you’re still confused, ask your financial advisor to help you
run the numbers.