In a trendy television ad, a sleek sports car hugs the curves on some deserted road. A smooth voice-over announces the car’s low monthly lease, and you suddenly realize you could afford those payments. Rather than buying that not-quite-so-sporty used car you had in mind at the dealership, you start to wonder if you should consider leasing instead.
Why not sit behind the wheel of a nicer, newer, better-equipped car for lower payments?
Before making the buy-or-lease choice, carefully consider what you want out of your next car.
First, you need to understand the basics: when you buy a car, even if you finance it, you’ll own it outright after paying off the loan. Leasing, however, is like renting. When you’re done paying the lease, you don’t own the car — and paying for something without the pressures of ownership does appeal greatly to some drivers.
Leasing is most attractive to consumers who want to update their car every two or three years and prefer to avoid the hassle of selling their used car. For example, Enrique Gonzalez, a computer systems analyst with his own business in Los Angeles, Calif., frequently drives to visit clients. He needs a reliable car with a warranty, something that looks professional – plus, he admits, "I also do like that new car smell."
"Leasing works well for me — I get a new car every two to four years with minimal maintenance cost," he says. "I definitely won’t keep a car long enough for the warranty to expire."
Gonzalez leased his first car in 2001, enticed by a low initial cost and inexpensive payments. "My monthly car payment, if I decided to buy the car outright, was around $100 more than the lease payment."
Leasing usually catches consumers’ eyes by offering monthly payments that are lower than the payments to purchase a car of equivalent value. Just like car loans, lease prices are negotiable, and you can shop around for a leasing agency that offers you the best deal (although you tend to need a better credit score for good lease terms than for a car loan.) You also may be able to write off your lease payment as a business expense if your employer allows it, or deduct it from your taxes you are self-employed and require the car specifically for work.
Buying a car, on the other hand, appeals more strongly to drivers considering costs over the long term, particularly those who don’t plan to upgrade their ride in three years or less. Clark Howard, a talk show host who provides consumer advice, warns that a long lease of four or five years is "a recipe for disaster. Many customers end up married to a vehicle they hate or end up paying severe early termination penalties."
Buying also allows for more freedom. Many leases have a mileage limit — usually under 15,000 miles per year — and you could end up paying up to 15 cents per mile for any overages. If you buy your own car, you can drive it as much as you want, for as long as you want, and can sell it anytime you want.
Auto loans or purchase agreements tend to be easier to understand than lease agreements. At LeaseGuide.com, an online clearinghouse of leasing information, potential lease customers are advised: "There are more opportunities to misunderstand and make mistakes [with leases]. Therefore, leasing requires that you be more careful and more informed."
For example, typically, "You are responsible for insurance, upkeep, and maintenance, just as with a purchased car. Some people mistakenly believe the leasing company is responsible."
In order to choose between leasing and buying, consumers need to look ahead and crunch some numbers. For example, if you buy a car with 0% down and make payments of $350 for 48 months, you’ll pay $16,800 for the vehicle. You may drive that car for 10 more years, getting a lot of use from the vehicle, or you may turn around and sell it used for $7,000, reducing your overall costs to $9,800. In comparison, with a monthly lease of $300 for 48 months, you’ll only pay $14,400 for the car — but you can’t sell the car to recoup any of your costs.
The drivers who make the right choice between leasing and buying are the ones who know their own needs, habits, and long-term plans the best.
Karen Bruce of West Haven, Conn., started shopping for a new car this spring when the odometer on her reliable old Honda hit 200,000 miles. She says she never considered leasing for a minute.
"I intend to take really good care of whatever I buy and drive it for a long time," says Bruce. "I’m looking for something extremely reliable, because I know it will cost me much less in the long run."
The American Automobile Association (www.csaa.com) recommends considering a lease only if you meet all four of the following criteria:
1. Able write off your lease payment as a business expense
2. Drive less than 15,000 miles per year
3. Prefer to trade in your car every three or four years
4. Want to avoid the hassle of selling your used car
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Check out the finance vs. lease comparison at www.toyotafinancial.com/finance_lease/buylease.jsp
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