To lease or not to lease?
As any TV watcher can tell you, auto聽companies are strongly聽pushing leasing these days. 鈥淟ow, low鈥� payments of $199 a month flash enticingly across the screen. But a reasonable question forms in your mind: Is leasing right for me?
If you examine聽you car ownership history, you will begin to see patterns that can聽help you decide whether to lease or buy.
So ask yourself these questions, and let your answers guide you in聽making the right decision.
1. How far do you drive?聽The standard lease contract allows for 12,000 miles a year or 36,000 miles for a typical three-year lease. If you drive farther than your allowed miles, you will have to pay 20 cents for each additional mile at the end of the lease. That could be quite a shock! Buying extra miles upfront is an option, but in most cases, high-mileage drivers are better off purchasing聽a car rather than leasing.
2. Do you use your car for business?聽Are you a real estate agent or a CEO or just someone who wants to impress clients by taking them to lunch in a luxury automobile? You probably can write off聽your lease payments as a tax deduction. But check with your accountant before you head to the dealership.
3. Are you a neat freak or sloppy?聽Most lease contracts are for three years, which聽gives drivers聽plenty of time to spill soda on the seats, ding the bumpers and scuff the door panels. Hey, stuff happens. Lease contracts allow for 鈥渁verage wear and tear,鈥� but when you聽return the聽vehicle, the word 鈥渁verage鈥� becomes debatable. This could prove costly for some people.
4. Do you like chrome-tipped exhaust pipes?聽Some drivers like to customize autos聽with hot rims, running boards or spoilers. If you lease, you鈥檒l have to take all that modified stuff off and return the car with the same look聽it had聽when you got it. So if you go for 鈥渕ods,鈥� leasing is probably not for you.
5. Are you short on cash but strong on credit?聽A commonly cited advantage of leasing is that it maximizes cash flow. Another way of thinking of it is a 鈥減ay as you go鈥� form of car ownership. So, rather than dumping most of your savings into a large down payment 鈥斅燼nd making high monthly payments 鈥� you can lease instead. If you have strong credit, you can start a lease with $0 down and still have lower payments than if you bought the car. Just keep in mind that three years later, you鈥檒l have to return it聽(or pay the buyout amount).
6. Are new cars your top priority?聽Most of us have limited amounts of money, so we spend our hard-earned cash on things we value. That means we have to make choices. For some people, spending money to always drive newer cars is important. Maybe they like the prestige they think it brings, or聽they like having the latest design and cutting-edge technology. Such聽people will prefer聽leasing.
7. Do you like to save money?聽Leasing is inexpensive in the short term (low down payment, low monthly payment), but over the years,聽. Why? Because the person who leases is always driving a newer car and paying the steep depreciation that clobbers a car鈥檚 value in the first year. Compare that to the person who buys聽a vehicle. After five years of making higher payments, the buyer can continue to drive the car with no payments. This can be聽especially important if聽the economy tanks or you face聽financial hardship.
If you still can鈥檛 make up your mind on lease vs. buy after answering these questions, it鈥檚 probably safer to default to聽. While the upfront costs are higher, a purchase contract provides more freedom when your life circumstances change.
Philip Reed is a staff writer at NerdWallet, a personal finance website. Email:preed@nerdwallet.com.
This article first appeared in .
