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To Buy or To Lease Your Next Car? That is the Question!

By Maureen Condon

Shakespeare didn’t give us the answer to this one. He just didn’t have the experience.

But, it’s a question most car owners ask themselves --- at least once every so often. And, there is no universal or simple answer. It all depends….

• On how many miles you drive each year.
• How you use your car – for business? for pleasure? for everyday living?
• What you can afford.

Edmunds.com summarizes the pros and cons of leasing a car vs. buying a car:

Advantages of Car Leasing


• Lower monthly payments
• Lower down payment
• You can drive a better car for less money each month.
• Lower repair costs (With a three-year lease, the factory warranty covers most repairs.)
• You can more easily drive a new car every two or three years.
• No trade-in hassles at the end of the lease
• You pay sales tax only on the portion of the car you finance.


Disadvantages of Car Leasing


• You don't own the car at the end of the lease.
• Your mileage is limited to a set amount, typically 12,000-15,000 miles a year (excess miles are paid for at the lease termination).
• Lease contracts are confusing.
• Leasing is more expensive in the long run (as opposed to buying and driving until the wheels fall off).
• Wear-and-tear charges can add up (paid at lease termination).
• It's costly to terminate a lease early if your driving needs change.


Advantages of Car Buying


• Pride of ownership — you can modify your car as you please.
• Car buying is more economical in the long run unless you buy and trade-in regularly.
• No penalty for driving excess mileage
• Increased flexibility — you can easily sell the car whenever you want.


Disadvantages of Car Buying


• Higher down payment is generally required.
• Higher monthly payments
• You're responsible for maintenance costs once the warranty expires.
• Trade-in or selling hassles when you're ready to get rid of your car
• More of your ready cash is tied up in a car, which depreciates, rather than an investment that appreciates.


If you would like to see by the numbers how leasing a car compares with buying, visit Edmunds.com’ s Auto Loan and Auto Lease calculators.


After selecting a car, you can see an estimated leasing payment, an estimated loan payment and which financing method is recommended. You can also see how your payment will change if, for example, the length of the loan is extended or the down payment is increased.


Leasing makes it easier to get more car for less money, at least initially. You are essentially paying for a portion of the car, instead of buying the entire vehicle. So, leasing sometimes looks like the best option in the short run.

However, if you buy the car, at the end of five years of car payments, the car belongs to you. It might not have much value on the open market, but if you're willing to drive it for several more years, it becomes nearly free transportation -- until you buy or lease your next car.

Ultimately, leasing or buying is both a dollars-and-cents decision and a personal taste and priorities decision. For instance, if you entertain business clients, leasing allows you to drive a luxury vehicle for less money -- with possible tax write-offs for certain professions. If you like to drive a brand-new car every two or three years, leasing facilitates that.

But, if you are more concerned with economy than appearances or tax write-offs, then in the long run, buying a car is more cost effective.

For more information and discussion on this topic, visit:
http://www.edmunds.com/advice/leasing/articles/index.html

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