To Buy or To Lease? Which is Right for You?


Leasing options on new cars have been around since the 1980’s. Back then figuring out if you wanted to lease a car was just a matter of doing the math. Renting to own an item was already popular for televisions and other home furnishings, but for vehicles it was still a relatively new idea and subject to many restrictions.

To Buy or To Lease?

With a lease you had a restriction on the number of miles you could drive your vehicle every year without paying a penalty and there was no way you would be in a position to buy the car at the end of the lease which meant if you didn’t want to lease another car you were no better off than if you hadn’t leased the vehicle in the first place.

Despite these limitations you could use a lease option to get behind the latest model vehicle for a smaller monthly payment than if you bought it, and that made it a popular option with folks who just had to have the next big thing.

If you were someone who used their car strictly to impress business clients, then a lease was a great deal for you. If you were looking for a family car that you could drive every day and fill with kids, the dog and the weeks groceries, then you needed to avoid leasing at all costs.

Another thing which makes a lease popular with some folks is that at the end of the term the dealer buys the car back. That means they have a stake in making certain it runs perfectly at all times. You got a new-car warranty and free maintenance throughout the lease term.

Unfortunately despite this, at the end of the lease term, when you did the math, it almost always made more sense to buy the car instead of leasing.

Today the leasing options works about the same way. You can (and should) have the dealer calculate the residual value of the vehicle at the end of the lease term in advance so you can tell what kind of deal you are getting. Make certain they eliminate the turn-in fee, too, so you don’t get charged for giving them their car back.

With a lease you still need to negotiate the price of your car, so don’t just accept the sticker price. Be prepared to haggle and get the vehicle exactly as you want it at the price you want to pay.

Rather than calling this the purchase amount, the dealer will call this the “capitalized cost” and it will impact how much you pay every month. The good news is, unlike when you buy a car you will only pay tax on the leased portion of your new car instead of the entire value of the new car as with a traditional purchase.

You also need to be aware of what the dealer will call the “money factor” which is essentially just like the interest rate you would pay on a new car purchase. Many dealers will not just offer you this information so be ready to ask for it in advance before you sign anything.

Just as you would when you bought a car–or rented a big screen projector television–make certain you are prepared to haggle for the very best deal. Read all the fine print and do not be afraid to ask questions. In the end, this is a big decision, and you need to be ready to protect yourself.

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