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Should I Lease or Buy a Car?

Matt Cullen

If you're in the market for a new set of wheels, there are plenty of deals to be had. As the United States' economy continues to grow post-recession, consumers are feeling more comfortable opening their wallets and shopping for bigger ticket items like cars, trucks and SUVs.

Due in part to the convenience and vastness of the internet, people are able to arm themselves with information about the vehicles they are interested in long before they visit a dealer's lot or take a test drive. Yet, one big question still remains: is it better to lease or buy?

The Lowdown on Leasing

By many accounts, leasing a new vehicle means getting a nice car for less money. Typically, monthly payments for leased vehicles are less costly than the amount you would pay if you purchased a comparable car, due to the fact that you are paying for the future depreciation of the car and not the vehicle's actual sale price.

One of the primary drawbacks to leasing, however, is the fact that you are only "renting" the car. When the time comes to return the vehicle, you will have no equity to trade in for a down payment on your next vehicle.

In addition, you need to be aware of the number of miles that you drive when leasing a car, as the majority of leases have mileage restrictions in their contract. If you go over the total mileage allowed, you will be required to pay a fee per mile at the end of the lease—which can be quite costly. Lessees have to be realistic about the number of miles they drive annually to avoid this added cost. You can typically purchase the amount of miles you'll be driving at the beginning of the contract—you just need to estimate your expected travel correctly. 

More: How much car insurance do I need?

The Benefits of Buying

There are certainly perks to buying a car, especially if you plan to keep your vehicle for many years. When you own your vehicle, you have equity in it. Even if your car isn't fully paid off, you can use that equity as a partial down payment on another vehicle if you change cars in the future. You could either sell it or trade it in at a dealership for money that can go toward your next car purchase.

Purchasing a vehicle also has its downsides. You may need to come up with a sizable down payment, depending on the overall price of the car. If you are financing the vehicle, you need to qualify for a loan and keep up with monthly payments. You should also consider the whether the vehicle is among the cheapest cars to insure.  

In addition, some states charge a yearly personal property tax to vehicle owners. In some cases, this annual tax can be several hundred dollars or more, based on the estimated value of the vehicle at the beginning of each year that you own the car. Don't forget to calculate this and other expenses, like parking and gas, when making your decision. If you buy a used car, your down payment and monthly cost may be cheaper but depending on how good of shape the vehicle is in, you may find yourself hit with more repair costs. 

When to Lease

For those who only have a small amount of money saved up, leasing may be the better way to go. While there are many leases that require several thousand dollars up front, others will allow you to walk away with the vehicle for $0 down. In addition, most consumers are not aware that many lease down payments are negotiable. Be sure to ask and negotiate for the rate you had in mind.

Because many leases last approximately three years, the car will typically remain under its full warranty throughout the entire term of the lease. With this in mind, you will likely be able to enjoy the newest model vehicle, with a low down payment, and very little—if any—repair costs, with the only real drawback being the limited amount of miles that you can drive without getting expensive extra charges. In other words, if you're leasing a car, it may not be the opportune time for a long road trip. 

When to Buy

Buying a vehicle will be beneficial if you plan to keep your car for a long period of time. Once you've paid off the car, you will have equity in the vehicle and the freedom to modify or use it as much as you wish.

One of the biggest advantages of car ownership is that you will have no restrictions on the number of miles that you can drive. If you use your vehicle extensively, this means zero worries about going over a certain number of allotted miles and having to pay a hefty fee. However, repairs will be on you after the car's warranty ends. 

There are many factors to consider when deciding whether to buy or lease a car. When doing so, it is important to factor in the overall cost between the two options, since the total expenses can vary significantly depending on your individual needs.

It ultimately comes down to how you will be using the vehicle, including how often you'll be driving it. In either case, however, there are many lenders that can help you with financing that works.