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How to Decide Whether to Lease or Buy a Car

Updated on February 3, 2012
Buying or leasing a car is a big decision.
Buying or leasing a car is a big decision. | Source

Not Sure Whether to Lease or Buy?

When it comes to leasing or buying a car, each choice has its own merits and detractions. One choice is not necessarily better than the other; however, it pays to know just where the differences lie:

  • Ownership. A lease agreement is an agreement to rent the car long-term as opposed to just buying it outright. The real car owner is the car dealer. For the privilege of driving the real car owner's car, you pay monthly payments to the dealership. Leases run from 2-5 years, generally, and when they end, the car is returned to the dealer. In comparison, if you buy the car, but on installment payments, then you get to own the car once your final installment payment is made (in other words, you obtain the title of ownership with your last payment).
  • Damage responsibility. If you own your own car, damages are your concern and are repaired at cost to you or to your insurance company. If you lease a car, any damage to the vehicle outside of normal wear and tear will be charged back to you. Your choice of repair shops is limited to those of the car dealer's choosing.
  • Monthly payments. A leased car requires less money per monthly payment than a purchased car. This is primarily because the dealership is the actual owner of the leased car, not you. You may have the option of purchasing a leased car at the end of its term, but the cost may be higher than you anticipated. Added in with your monthly lease payments, the total amount that you pay to purchase a leased car may be more than the cost of the original car.
  • Mileage. Leased cars typically have a limit on the number of miles that can be driven per year. Driving in excess of those set miles means that you will be paying a per mile fee when you finally return the vehicle to the dealership. These fees typically run $0.10-$0.15 per mile exceeded. Obviously, if you had purchased the car, you would have no mileage restrictions.
  • Car insurance premium. Car insurance premiums cost more money if the car is leased rather than owned. You may also need to pay something called "gap" insurance. This "gap insurance" covers the difference between what an ordinary insurance payout would be for a "total" loss versus what an insurance payout would be for a "total" loss paid to the dealership.

In conclusion, when deciding between leasing and buying a car, consider your financial, life, and travel circumstances first. This way, you can decide which option is best suited for your needs. For example, if you are comfortable fixing your own car, it makes little sense for you to take out a lease on a car that you'll need to drive back to the dealer for every oil change or squeak. On the other hand, if you are so busy with work or personal life that you can't even find the time to fill your car's gas tank, then a leased car will probably be a better bet for you.

By comparing the amounts of lease versus installment payments, you might find that one option is far more expensive than the other. However, consider the fact that leased cars are usually younger and lower in mileage than owned cars. This means that, over time, an owned car will require more money for general upkeep. Likewise, if you wish to sell your owned car, you may not get its actual appraised value. If you end up selling your car, you must now spend time and effort finding a new vehicle. By contrast, you can easily trade your leased vehicle for a newer model and pay just a few thousand dollars for this trade.

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