Should I Lease or Buy My Next Auto?

james_g_hoffman_cfp.pngThere are many different factors that go into deciding whether to lease or buy an automobile. Often, changes to any one of these factors can cause one to become more favorable than another at a given time.

Automakers have cut back their leasing programs, largely due to lower used vehicle prices. Relying on leasing would hurt their already weak profits.

Although car lease payments are usually lower than car loan payments for the same automobile, this difference has been cut in recent years. Lower resale prices for cars mean higher lease payments, because the lease payments have to cover the depreciation of the vehicle’s cost. (However, these higher lease payments are tax deductions as business expenses for autos used in a business.)

What You Need to Consider

Do you need to preserve your cash? If so, a lease could mean lower upfront costs for you.

How often do you wish to get a new car? If you are someone who likes to get a new car every three years or sooner, leasing a car would be better.

How much do you drive your car? If you drive more than 15,000 miles per year (the average yearly amount allowed in most leases), you should consider buying.

How important is your car’s resale value to you?

If your car’s resale value is important, leasing would lock in the resale value. In a lease you would, however, be responsible for charges for anything exceeding normal wear and tear to the vehicle.

Are you sure you can complete the lease? If you don’t have a clear idea of where you will be living in two or three years, leasing would not be the better choice. Any money saved on a lower down payment and lower monthly outlays would be wiped out by cancellation charges if you have to terminate the lease early.

Is the leasing company reliable? The lease is a financial and legal commitment. You need to be sure that the leasing company will fulfill its end of the agreement.

Are you sure you have enough insurance to cover the car if it is totaled or stolen? Your insurance will only reimburse for the car’s market value, which might be less than you owe on the lease. You might need extra insurance to cover this gap.

Our Recommendation

The decision as to whether to buy or lease an automobile is one that should be based on your own circumstances.

We recommend that you lease a car if you prefer getting a new car every three years or sooner, you drive less than 15,000 miles per year, and you think that a purchased car’s resale would be too low or too unpredictable. For others, buying a car would make more sense.

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