When to Lease, When to Buy

When people go to take on a car loan, many wonder how there might be a way to spend less on an auto loan as opposed to more. They go looking and find that they could possibly lease a car as opposed to outright buying it. There are advantageous and disadvantageous to both.

With an outright car loan, you borrow the money from the financier to pay for the car. When the auto loan is paid off you own the car. With a lease, you agree to pay a leasing agency a certain amount of money, and then at the end of the lease you give them the car back unless you decide to buy it.

With a lease, you will have a lower monthly car payment than with a traditional car loan, and if you use the car for business you can deduct the depreciation and interest from your taxes. You can also drive a more expensive car if you desire because the payments are less than for an auto loan on that same car.

However, you don’t own the car at the end, so you end up having to either start a new lease or take out a car loan to purchase the one you have been leasing. There is no equity for you in the car, so you end up with perpetual car payments. It is also expensive and difficult to get out of a lease, so if you change your mind or your finances change, you may be really stuck.

You are also required to stay within a certain amount of miles, and if you go over that amount you will have to pay 10 to 25 cents per mile over unless you purchase the car. You have to pay for unreasonable wear and tear as well, and your insurance costs will be higher because you have to carry gap insurance as well. So what seems like a good deal may not be in the end.

Back to July 07 Archives