Should You Date or Marry Your Ride?

Leasing or buying? It's a question many car, truck and SUV owners wrestle with each time they need a new vehicle. The question is easier to answer if the decision comes down to a straight financial or convenience choice.

 A long-term relationship with a significant other requires careful thinking before making the commitment - just as the decision to buy a vehicle requires research and careful thinking about priorities before taking the plunge. And just as a no-commitment relationship with someone might feel like a sweet deal until reality sets in, seemingly carefree car leasing can also come with unforeseen hiccups.

 Types of Leases

Many people think of leasing in terms of a closed-end contract, which lets the driver return the car after a short-term period. Open-ended leases continue until the driver pays off and owns the car. Closed-end leases are often taken by businesses for a variety of financial reasons. This article discusses the difference between consumer closed-end leases and purchases.

 Pros of Leasing

In a nutshell, leasing give buyers more for their money during a short-term commitment, according to independent vehicle review website Drivers pay less, and can get more features or a higher class of car, but they don't own an asset they can later trade in or sell. With leasing, the advantages include:

  • Lower down payment
  • Smaller monthly payment
  • Dealer pays for most repair costs
  • More car for less money each year
  • Possible tax write-off for business owners
  • Lower sales tax obligation
  • Reduced commitment
  • Easier to get rid of the car

 If a driver only needs a car for one or a few years, his total cost will be less with a lease. It's easier to buy and walk away from a leased vehicle, allowing drivers to change cars if they decide they don't like the one they're leasing, if their personal situation changes and they need a bigger or smaller vehicle, or if they just like driving different vehicles every few years.

 The leasing company takes care of most repair costs because they own the car and want it back in good shape at the end of the lease. The driver's insurance covers any accidents. With a lease, a vehicle owner doesn't have to worry about the auto going out of warranty and having to pay thousands of dollars for repairs such as a new transmission or broken catalytic converter.

 Cons of Leasing

While leasing costs less per year in the short run, drivers don't ever get the chance to drive a "free" car with no monthly payments, or sell or trade in their cars. After five years, the cost of driving is often higher for most people who lease, depending on a purchased car's warranty and how well the car holds up. Disadvantages of leasing include: 

  • No owned asset, resulting higher driving costs over the years
  • High-mileage drivers pay more
  • Fine print surprises
  • More out-of-pocket investment over the long run
  • Wear-and-tear expenses due at end of lease
  • Early-termination charges
  • Higher insurance costs

 A new car, maintained well by the owner, can last 10 or more years, with most of those years coming with no monthly car payment. With a lease, the consumer is always on the hook for a monthly payment. Lease contracts can also be filled with fine print, leading to unexpected expenses, warns Consumer Reports. For example, when driver's turn in a leased vehicle, they are charged for "wear and tear," which is difficult to estimate because it includes things such a dents, chipped paint and damage to seats. Ending a lease early also comes with an early termination fee negates some savings. Lessees should check their contract to understanding the maintenance costs they'll have, which can include oil changes and brake jobs.

Pros of Buying

Buying a car lets drivers see most of their expenses in advance and gives them ownership of an asset they can keep, sell or trade-in for a discount on another car. The situation is similar to owning a home or renting an apartment. The benefits of buying a vehicle include:

  • Lower total expense over the life of the car
  • Unlimited mileage
  • Easy disposal
  • No monthly payment after the contract is paid off
  • Lower insurance costs

 With good driver maintenance, the operating costs of a purchased vehicle can be similar to a leased vehicle while the owned car is under warranty. If a driver doesn't mind a larger financial commitment upfront and for the first few years of owning a car, buying lets drivers keep more money in their pockets. Long-term owners, as compared to long-term lessees, can put more money toward their retirement, children's tuition or house down payment funds.

 Cons of Buying

Buying a vehicle decreases the owner's flexibility and options, in terms of her ability to switch autos. After the warranty expires, the operating expenses for an older car can be much higher than for a leased vehicle. The main disadvantages of buying a vehicle include: 

  • Larger down payment
  • Bigger monthly payments
  • Driver pays all maintenance costs

 Drivers who are struggling to pay their bills will need to dig deeper the first few years of owning a car than if they lease. This includes a larger initial down payment, higher monthly payments and higher annual taxes. A typical car purchase down payment ranges from 10 to 20 percent, according to Liz Opsitnik, deputy managing editor, autos, at U.S. News & World Reports. Lease down payments are negotiable, she notes, with those ranging from no money down to several thousand dollars. Depending on the lease and warranty, maintenance costs can be higher for an owned vehicle, especially as the car gets older.

 Financial guru Suze Orman calls any car loan that lasts longer than 36 months, "financial irresponsibility," based on the extra interest consumers pay that could be put toward retirement savings or emergency funds. In her article, Orman writes that a long-term car loan is such a waste of money that it "boggles my mind." She cites statistics showing the average car loan at 67 months, with up to 25 percent of loans lasting between 73 and 84 months.

 Lease vs. Owning Calculators

To get a feel for the difference in the upfront, annual and long-term costs of leasing vs. buying, consumers can use online lease and ownership calculators. These calculators allow drivers to enter their budget numbers to see what they can afford, or check out specific models to determine the leasing and buying costs. These calculators are available at manufacturer websites, or independent financial and auto websites.

 Timing is Important

Another factor to consider when looking at buying or leasing is the current state of the economy, advises financial website BankRate. The costs of leasing and buying fluctuate with the economy, and the sweet lease deal a driver gets on one car probably won't not be available three years later. Depending on interest rates and the state of the auto industry, the financial differences between leasing and buying are greater or smaller in any given year.


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