Comparing Leasing a Vehicle with Buying Your Car

Leasing is a fast and easy way to get a car with little or no down payment. Monthly lease payments usually are less than loan payments for a new car. Additionally, you’ll encounter less paperwork, inspections, and registration hassles when leasing a car.

Leasing appeals to individuals who use cars for business, need a car for a limited period of time, trade in their cars at regular intervals, want to know their monthly costs in advance, or want to invest their cash in different activities. Leasing, however, has its share of limitations and disadvantages. The following table provides an overview of the comparison between leasing and buying.

Comparison of Leasing versus Buying
Leasing Buying
Monthly payments are applied to depreciation, not the purchase price of the vehicle. Monthly payments are applied to purchase of vehicle.
Monthly lease payments are significantly lower than car loan payments. Monthly payments include financing charges.
A down payment often isn’t required. Down payment usually is required.
After the lease period is over, you need to lease another vehicle. When the car loan is paid, you own the car.
Exiting the lease early usually requires coming up with a large amount of cash. Early termination penalties vary. You can modify your car any way you want. Don’t hesitate to put on those fancy hubcaps.
You must predetermine how many miles you drive per year. No mileage restrictions; however, higher mileage reduces the trade-in value of the car.
Your vehicle usually is covered by the manufacturer’s warranty for the duration of your lease. Car loans usually extend past the warranty period, so you’ll be responsible for repairs.
You have to pay for any excess wear and tear. Although you have maintenance and upkeep requirements, performing routine tasks is a good idea.

Be sure to calculate the differences between purchasing and leasing by referring to the Internet. SmartMoney.com offers an auto buy-versus-lease calculator. At the home page locate Personal Finance and click on Autos. Next click on To Buy or Lease. Scroll toward the bottom of the page and enter the price of the car, your down payment, monthly payment or lease, rate of return from your investment portfolio, and value of car at the end of the lease. The online calculator makes a recommendation.

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