To Buy or to Lease?

Here’s a question I get often, especially as lease deals get more and more financially enticing: Bob in New York asks: For personal use, which is better, buying or leasing a car?

Bob, the first place you should look to is not necessarily the size of your budget, but your lifestyle. Who’s going to use the car? If you’ve got kids who will scuff the seats and squish ice cream into the upholstery, buy. What’s your commute like? Keep tabs on your miles over a typical week and calculate them out over a year’s time. If you add in a couple road trips and come up close to 15,000 a year, buy. The fees you’d pay for miles over your annual limit or extensive cleaning and refurbishing may not make enough of a difference for leasing to come out on top for you.

Also, what’s the down payment on the lease you’re looking at? Many times they’re fairly high and that $2,500 up front is just a way to make those monthly payments seem smaller. And like with whole life insurance, what if the car you buy zonks out early? Goodbye to that $2,500 down payment. Look into sales tax as well—are you paying sales tax on the monthly payment, or on the full price of the car (which many times with a lease is above the cost of a new car for purchase).

In my book, leases work for the few, as seductive as they sound. Crunch some numbers between a ‘buy’ and a ‘lease’ at Realistically, buying (with smart negotiating) in the end means you have something to show for your money. A depreciating asset, but nonetheless, something you can sell at some point.

The most important question when deciding between buying and leasing: How long do you plan on holding onto the car. If you can forgo the new car every 2-3 years buying makes much more financial sense, especially as newer models are more reliable than ever. Own a car for 5-7 years or more and your making a smart move. If you commonly like the newest model every few years and can stay within the allotted mileage then leasing is the way to go. --Craig, NJ

Posted on: 02 Jul 2008 2:38 P.M.

I have a 2007 Toyota Camry with 20K mileage and I owe $19K to the bank. I am worried I would never be able to re-sell the car. Is it a good time to sell or wait? --Krishna

Posted on: 01 Jul 2008 8:02 P.M.