Lease or Buy a Car: How to Decide

The number of consumers who choose to lease a car rather than buy a car has exploded. Fifteen years ago less than 10 percent of consumers in the market for a new car chose to lease rather than to buy. Last year the percentage of consumers who chose to lease rather than buy a car was over 35 percent. Leasing a car can cost less per month than buying a car, which is just one reason why many consumers have chosen to lease rather than buy. Should you lease or buy a car? There’s no right answer for everyone: it depends on how you’ll use the car and how frequently you like to have a new car. Here are general considerations for whether you should lease or buy a car:

You should buy a car if:
• You plan to keep the car for at least five years, or for longer than you’ll have to make payments on the car. For instance, if you intend to get a 36-month loan to buy the car, and you intend to keep the car for at least four years, then after three years you’ll be able to drive the car without making monthly loan payments.
• You want to save money over the long term and are concerned about cash costs. You could lease your car and invest the difference between the low lease payments and the higher payments you'd make on an auto loan. If you have that kind of financial discipline, then leasing the car is the cheaper option. But if you don't have that kind of discipline, and you don’t invest the difference, then buying the car is cheaper.
• You want to buy a used car. Because car leasing is so popular, many dealers have excess inventory of two to three year-old cars that were leased and then turned in. If you don’t mind driving a used car you can save significant sums on a car lease.

On the other hand, you should lease a car if:
• You want to drive a more expensive car than you can afford. Because monthly payments on car leases are usually lower than on auto loans, you can drive a more expensive car for the same money. Leases also usually don’t require a large down payment, so if the down payment requirement on a car purchase was holding you back, you may qualify for that car if you get an auto lease.
• You want a new car every two or three years, and the idea of “permanent” monthly payments doesn’t bother you. Leasing a car automatically means you’ll get a new one at the end of the lease period (unless you purchase the car instead of turning it in.) On the flip side, you’ll never “pay off” a leased car – you’ll always have a monthly payment as long as you’re leasing.

If you do decide to lease a car, here are a few things you should do when you return the vehicle:

• About six weeks before the car lease period ends, take the car back to the dealership for an inspection. If items need to be repaired, you can find the cheapest method of making those repairs. Finding an independent shop to make repairs is almost always cheaper than letting the dealer make the repairs.
• Have the car “detailed.” Have it cleaned thoroughly; it’s hard for a dealer to justify additional penalties for wear and tear when a car looks as good as new.
• Make a visual record of the car’s condition. Take photos or make a videotape – that will give you a backup in case there’s a dispute.

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