to lease or buy a car?

Last year, Americans bought or leased more than 17 million vehicles. About two-thirds bought, but the percentage of leasing is climbing every year. Millennials seem to be at the forefront of that trend, possibly because a lease requires less of a monthly outlay, which allows the lessee to drive a more upscale vehicle. But the millions of drivers choosing on each side are testimony that each choice has compelling advantages. You’ll find little or no wisdom dictating one way or the other for all. The truth is that each individual needs to weigh all factors in his or her personal life to finally decide which option will work best.

Many factors are at play in this debate. Let’s examine the most important ones.

People buying a car are paying more money than people leasing one, because, whether paying cash or, as most people do, making a down payment and taking out a loan to complete the transaction, they are actually taking ownership of the vehicle. People leasing generally make lower monthly payments but do not have the advantage of owning the car at the end of the lease period. So do you want to pay more and eventually own the car, or pay less but give it back at the end of the lease period? The answer for each individual will be revealed only after examining more deeply the many components of the transactions. You can also read our article, When it makes sense to buyout your lease.

Here are some of the most significant advantages of leasing:

• The monthly payments are typically much lower than the payments in a car loan, so you can usually afford to drive a more expensive, more luxurious vehicle. Here’s an example: If you had your eye on a $42,450 car, agreed to a 10-percent down payment and took out a loan at 3 percent interest, you’d be faced with paying $845 a month. Pretty pricey for most people. On the other hand, a 39-month lease on the same car with $4,164 due at signing ($3,000 down and $795 “acquisition fee”) would leave monthly payments of $369. Very affordable for many of the customers who couldn’t even consider the purchase deal.
• You’ll almost always be driving a car under factory warranty, provided you turn it back in at the end of the lease period, so you’ll rarely, if ever, incur repair payments. Depending on the lease deal, you may not even be responsible for normal service, such as oil changes.
• You’ll always be driving a “new” car as long as you stick to the lease contract. As soon as the lease expires, you drive the car into the lot and drive away with a new model.
• You’ll pay less in sales tax, and you won’t be unsettled by trade-in negotiations or the problems associated with trying to sell your now-used car.
• In theory, at least, you will never pay the full worth of the car in a lease. The normal “worth” is about 55 percent before turning the vehicle back in. For example, if you lease a $30,000 car and put $3,000 down at signing, your payments will typically total $13,500 for three years’ use of a $30,000 car.

If these are the issues that are most important to you in acquiring a vehicle, the lease is for you. However, a lease comes with some downsides. Among them:

• At the end of the lease, you have gained nothing. You don’t own the vehicle and have not built any equity. In effect, you have been driving someone else’s car. You could buy your lease car at the end of the contract, but then you will be buying a used car, financing could be more expensive, and the care-free lease process will have been forfeited.
• You will have a mileage limit, normally about 12,000 miles, though you can pay more for additional mileage when you negotiate the original contract. If you exceed your limit, a charge is imposed — generally 20 cents a mile. That can build up fast. And imagine your anxiety and inconvenience as you approach that magic number on the odometer and the calendar aren’t keeping pace. Not only will you have to think twice about those extra trips to the store, a vacation out of the area will most likely be out of the question.
• While you will be driving a new car under factory warranty, you can be charged at the expiration of the contract for excessive wear and tear, as well as for mileage over the maximum.
• There is usually no escape from the terms of the contract. If you don’t like the car, unless you can negotiate a new arrangement with the dealer, you’re stuck with it for the balance of the three years. And, if your driving habits or requirements change, it can be expensive to terminate the lease.

Buying a car has obvious advantages, the most enduring being that, once your payments are concluded, you own something. That is probably the biggest feature in favor of purchase over lease, but there are others:

• You can do anything to that car you want, inside and out.
• While the payments are more while you’re making them, they eventually end. And, when they do, you will actually have spent less than with lease payments in perpetuity.
• Drive where you want, when you want, and incur no penalty. Your only mileage limit is your own.
• You have unbridled flexibility when you dispose of your car.

But remember these cautions, too, when leaning toward purchase:

• More of your cash is tied up while paying for the car. You’ll want to make more of a down payment, probably, to lower your monthly loan costs, which will be higher than a lease would extract. And you may, for a time, owe more on the car than it is worth.
• Once the warranty expires, you’re on your own for repairs. With a lease, you will probably always be covered by warranty.

So neither buying nor leasing is right for everybody or in every situation. All the ingredients of a person’s life — needs, goals, uses, locations, tastes, habits — must be taken into account. A nicer car at a more attractive cost can also come at a price that isn’t right for you.