Credit & Debt
Should You Buy or Lease Your Next Ride?
5 Questions to Help You Decide
When Brian Janosch started car shopping, he thought he and his girlfriend would certainly buy something. The pair changed their minds after exploring the benefits of leasing.
"We were unsure of where we'd be in two to five years, whether we'd have kids or need something different," says Janosch, 30, of Palo Alto, Calif. "The thought of buying a car for the long term was intimidating."
In contrast, a lease is a long-term rental agreement. You make monthly payments, typically for two to five years, in order to drive a new car and then either return or purchase it at the end of the lease term.
Which option makes sense for you depends on a host of factors, says Ron Montoya, consumer advice editor for Edmunds.com. Buying a car is usually cheaper in the long run, but it offers less flexibility and typically higher monthly payments. Here are five questions to help you determine whether buying or leasing your next ride makes the most sense.
1. How long do you plan to keep the car?
With a lease, you don't own the car, but instead pay to use it. It gives you the ability to change up what you're driving on a regular basis. “It's a lifestyle decision," says Montoya. “Do you want to drive a new car every three years?"
If you like to switch cars frequently or anticipate your car needs will change in the near future, then you might consider leasing. If you plan to keep it over a longer term, owning might be best. Remember, a car is considered a depreciating asset, losing value as soon as you drive it off the lot, so whatever you pick, just remember, it will likely be worth less when you decide to sell.
2. What's your monthly cash flow?
When you lease a car, your monthly payments are usually lower than if you financed the purchase of a new car. That's because you're only paying for the car's estimated depreciation during the lease plus a rent charge, taxes and fees.
Taking out a loan to buy a new car typically results in higher monthly payments, so if you'd rather limit the amount of cash you have to put out each month, consider the lease. But if you plan to keep the car for at least five or six years and can handle the higher payments, you'll likely pay the loan off and own the car outright. “Then you'll get to enjoy the benefit of no monthly payments," Montoya says. As the owner, you'll get the benefit of whatever it's worth if you eventually sell it or trade it in.
3. How much do you have for a down payment?
You can often get the keys to a new, leased car for a much smaller down payment than if you financed the purchase. For instance, Janosch traded in a 15-year-old Ford Taurus and drove away in a new, leased Volkswagen Jetta with no money down and no first month's payment. The value of the Taurus covered those costs. The downside, though, is that you won't have an asset to sell or trade in when you decide you want another vehicle.
4. How much do you drive?
Most leases put a limit on the number of miles you can drive per year without incurring additional costs. It's typically from 10,000 to 15,000 miles per year. “You can go past it, but you just have to pay for those miles once you do," Montoya says. The cost for each additional mile varies, but you can sometimes try to negotiate a lower mileage cost when getting your lease. Sometimes the automaker will forgo those extra mile fees if you commit to leasing another car, Montoya says.
5. Are you driving for business?
If you use your car in your own business, the IRS says you can sometimes take a tax deduction for a portion of your lease payment. Check with a tax advisor to see if this applies to you.
If you're on the fence about whether to buy or lease a vehicle, there are many factors to consider, and ultimately the right choice will depend on your personal budget and driving needs. Visit Chase Auto Loans to learn more about auto loan financing options.
Kelly Kearsley is a freelance writer and editor who specializes in business and financial writing. Her work has been published by a number of news organizations, including The Wall Street Journal, CNN Money, Money Magazine and Runner's World.