How to Compare Car Buying & Leasing

For anyone who drives, the pleasure and reliability that comes from driving a new car ranks among the best of pleasures. To get a new car, you can purchase one or you can lease one. When you purchase a car, the vehicle belongs to you. When you lease a car, you do not own the vehicle. You can drive it for an agreed-upon length of time. When the lease period expires, you must return it to the dealer. When deciding to own or lease a car, carefully consider the advantages and disadvantages of each.

Instructions

1

Match your decision with your annual miles. For instance, with a car that you own, you can drive all the miles you need. Leases, however, typically restrict your annual miles to 12,000 to 15,000 miles. If you exceed the annual mileage allowance, you must pay a surcharge for each mile. This per-mile charge costs between 15 and 25 cents per mile. Although this fee might seem small, going over your limit by 1,000 miles can create an additional $150 to $250 bill at the end of the lease-period.

2

Consider the cost of repairs. If you purchase a new car, your car will benefit from a warranty. Five years later, however, you might have to do plenty of repairs without the protection of a warranty. Similarly, once your warranty expires, expect $250 to $1,000 per year maintenance costs. When you lease a car, you might have minor maintenance costs like changing oil or brake pads, but your lease will probably expire before you experience any major maintenance problems. Your lessee warranty will cover major repair problems.

3

Decide if you can afford the short-term costs. Short-term costs for buying a car exceed those of leasing. Purchasing a new car typically requires a significant downpayment or trade-in. If you purchase a $50,000 car, you will probably have to provide a 5- to 10-percent downpayment or $2,500 to $5,000. If you finance $45,000 over five years, your payment will equal $750 per month plus interest. You can lease a $50,000 car for leasing fees between $500 to $2,000. Additionally, leasing involves paying for the depreciation over the lease period. If the car will depreciate $6,000 over 24 months, your payment would total $250 plus interest.

4

Compare the car quality and features each option allows. If you purchase a car, you might not afford a $50,000 luxury sedan. You might have to settle with a $15,000 car instead. You might have to forego a car with all the added options. If you lease a car, you can lease a fully loaded automobile for a fraction of the sticker price.

5

Compare long-term costs. Long-term costs of leasing exceed those incurred by purchasing. Purchasing a car often requires a monthly payment depending on the amount of money you finance. If you pay for the car outright, your monthly fee will cost nothing. Additionally, over time, you will accrue equity in your automobile. Equity lowers long-term costs. Depending on the car you want to lease, you will have a fixed $200 to $400 leasing fee. During your lease-period, you will not gain equity to offset your payments.

6

Determine the benefits of ownership. Ownership does not limit you in any way. You can drive your car when, where and how often you want. If you dent the bumper, you own no one anything. Leasing a car, however, requires that you maintain the lease agreement. If you dent the car or return it in condition other than that stipulated in the lease, you will have to pay a fee. When you purchase a car, your car will retain some of its value, so you can sell the car and get some of your money back. With a leased car, you don't own anything, and you can't recoup any of the money you spend.

7

Determine your need for variety. Depending on the length of your lease, leasing allows you to trade in your car every two or three years. If you purchase a car, you must sell it before you can purchase another one.