Do you buy, or do you lease?
If you've decided it's time for a new car, that question can prove a confounding step in the decision process to some.
With some people swearing on the no-hassle benefits of leasing, and others pointing to you as fiscally reckless if you don't buy, advice can be polarized to the point of being unhelpful. Truthfully, though, the answer lies in the gray area in between—depending on how the numbers work out, along with your own priorities and how leasing does (or doesn't) fit your needs.
Getting down to numbers
Essentially, with leasing, you're financing the privilege of keeping and driving a vehicle as yours for a particular portion of its lifespan. And in most cases, that means that you take delivery of a new car, but instead of financing its entire purchase price, you're financing its depreciation—based on what it will be worth in two to four years, when the lease period is over.
We compare the numbers between buying and leading—and comparing their relative costs—in a separate post. But fundamentally, before that we have one piece of simple advice: As tempting as it might be, don't shop by advertised monthly lease payments. Shop by the price of the car. Lay all the numbers out before signing anything and know exactly what extra fees you're paying.
Keep in mind, no matter what, that leasing isn't a glorified type of by-the-month rental; it's a commitment, and you're buying several years' use of a vehicle up front, essentially. The only way to get out of a lease cleanly—other than perhaps trading it through a company like LeaseTrader and getting someone else to legally assume the lease terms—is by paying off the remainder of the lease. Depending on the vehicle, and the timing, leasing can leave you in an “upside down” financial state—owing more money to the leasing company than the vehicle is otherwise worth at that point.
That said, here are some situations for which leasing can make sense:
- You need a vehicle that best supports your successful, prosperous professional image. Since you're financing a period of the vehicle's depreciation, rather than its full value, leasing can allow you to get a lot more car for the money—and in some cases, a luxury car on a more modest budget. If you're a salesperson or realtor, that can be a positive for your image. However, in plenty of other professions (like if you work for the government, or a non-profit), you won't want overly ostentatious either.
- You want the latest technology and features. Whether you're an early adopter type, or you just see a lot of worth in getting the latest connectivity, in-car interfaces, or driver aids and safety features, a lease can allow you to essentially drive a better equipped vehicle than you'd be able to buy.
- You put a consistent, predictable number of miles on your vehicles. Leasing is a good fit for those who have regular commutes, or pretty regular mileage in doing short work trips or visiting clients. Having a steady job and a routine goes right along with this.
- It's a 'subsidized' lease. Sometimes, for economic factors that aren't readily apparent to the shopper, you'll find lease deals that seem, once you add up the numbers, almost too good to be true. In nearly all of such cases the automaker itself is, through a captive finance corporation, manipulating the numbers a bit (with a higher anticipated resale/residual value, for instance). Some of the bargain lease payments offered on many new electric cars are good examples of this—as are the deals on some popular and entry luxury models. If you're on the fence, this can be enough to lease. Carpe diem!
- It saves you money on taxes. If you use your vehicle for work, leasing might save you money versus buying. But that depends on a host of variables, and you should see a financial advisor or tax professional first.
And on the other hand, leasing isn't the right choice if:
- You have active children and pets. At the end of the lease period, the vehicle is inspected, and you'll be paying for anything that's beyond normal wear. While these interpretations do vary depending on the dealership and the brand, if your kids or your pets have damaged vehicles before—whether that be gouged door panels, ripped upholstery, or unforgettable carpet stains—let that be a warning that leasing might not be for you.
- Your cars tend to get parking damage. Whether it's small dents from the small spaces of the parking lot at work, the scratches from parallel-parking at home, or nicked-up wheels, you pay for it all at the end. And it probably cancels out any advantage of leasing.
- You need to modify the vehicle in any way. Do you intend to lower the suspension, upgrade the brakes, and install racing harnesses? You'll need to return the vehicle the way it was when you leased it, and your accessories and mods will need to be removed—all at your expense.
- It's not a daily driver, or if it's for long summer road trips. If you tend to do more of your driving in unpredictable amounts on the weekends, or if you're known to take your vehicles on meandering summer road trips, a lease ends up looking like quite a gamble. Drive too much and you'll get hit with excess charges at the end of the term. Drive too little and you'll feel silly having paid too much—to the bank's gain.
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