Should you lease a car or buy one? The answer depends entirely on your specific circumstances and preferences. Think about the pros and cons of each option and how they apply to you.
- That “new car” smell. Since most lease terms are two or three years long, if you continually lease, you’re always driving a fairly new car.
- More car for less each month. Typically, you can afford more car when you lease since the lease payment is usually lower than the finance payment on the same car.
- Tax perks. If you are a business owner and use your car mostly for business purposes, a lease can be attractive because you are allowed to write-off most of the monthly payments on your taxes. (Always consult a tax professional when it comes to what you can and can’t write-off though.)
- Fewer worries. Since leased cars are newer, they won’t have as many maintenance issues, and those they do have are usually covered by their warranty. Some brands even throw in routine maintenance like oil changes for free for the entire lease period. When the lease term expires, you simply turn the car in.
- More flexibility. With a leased car, you’ll have to pay close attention to where you go and how often, since leased cars come with annual mileage caps. Paying for overages on the backend can get expensive. With a car you own, you can drive as much and as far as you like without having planned ahead.
- Less commitment. If you want out of a lease deal before the term is up, you could have to pay hefty “early termination” fees. If you own your car, you can put it up for sale or trade it in whenever the mood strikes you.
- More freedom. When you own a car, you can do whatever you want to make it truly yours. Customization can be added to a leased car, but before you turn it back in, you’ll have to remove it all, and if the custom parts caused any damage, you’ll have to pay to have it fixed.
- Less expensive over all. If you want to buy the car you leased after your term is done, you’ll probably end up paying more for it than if you had bought the car outright to begin with.
Tips for Leasing:
- Understand what leasing is. Leasing is essentially a form of financing with the monthly payments figured using the rate of depreciation for the specific make and model you’re leasing. The more depreciation (loss of value over time), the less the car worth at the end of the lease and the higher the lease payment.
- Look for a car that depreciates less than others. Since depreciation and residual value determine your monthly payment, a car with high residual value lets you get more bang for your buck.
- Negotiate. Haggle on the price of the car just as you would if you were buying it. The same goes for other terms of the deal like the interest rate (often called the “money factor” when leasing) charged and miscellaneous fees. And if you think you need more miles each year than are included in the deal, buy them upfront. They’ll cost you more at the end of the lease.
Tips for Buying:
- Get pre-approved for a car loan. Dealerships offer financing, but you’ll probably find a better rate elsewhere.
- Know before you go. If you’re trading your old car in on a new one, find its fair value using a source like Kelly Blue Book so you can confidently negotiate with the dealership. You can also find the dealer’s cost for the specific car you are considering and the average price that others are paying using sources like Consumer Reports. This will help you know how to set a price target or what you’re willing to pay.
- Do a test drive. Never buy a car without getting behind the wheel.
- Shop around. Don’t start the process with the first place you look. Check other dealerships that have the car you want to compare prices. And consider dealerships in nearby cities too.
- Dissect dealership lingo. Watch out for add-ons that you don’t really need, things like paint sealant or window etching of the VIN number. Do a little homework to find a list of the unnecessary extras often offered on the car you’re after.
Whether leasing or buying, always negotiate the car’s price. The lower the selling price, the lower the monthly payments on a lease or a loan. Use MAX’s buy/lease calculator to see what both payments would be and compare.