Should you buy or lease a car?

When it’s time for a new vehicle, you have two choices: buy or lease.

Which one is best? To help you decide, here are three questions to ask yourself:

Own or rent?

Would you rather rent your car and upgrade every few years? Or own the car and upgrade at your leisure?

Leasing is renting a car for two to three years. If you like driving the latest model, leasing may be for you. But when it expires, the money you’ve paid is gone, too. You’ll have nothing to show for it.

Want to get a different vehicle before your lease is up? Sorry, but you’ll just have to wait … or pay a pricey early-termination fee.

When you buy a car, you will eventually own it. You can drive it for as long as you like. Or you can sell it whenever you want to get a different vehicle. When you do sell it, you can (hopefully) recoup some of the money you paid for it.

Mileage and maintenance considerations 

Do you drive less than 12,000 miles per year? Do you keep a rigid maintenance schedule? Then leasing might be for you.

Leased vehicles have annual mileage limits, usually 12,000 to 15,000 miles. You’ll pay 15-20 cents for each mile over the limit that you drive. This can quickly add up. If you drive a lot -- maybe you have a long commute to work, for example – leasing may not be a good option.

Car dealers often require a base level of maintenance for leased vehicles. You must follow the vehicle service plan in the lease agreement. Any scratches, dents, dings, or wear and tear will also add to your lease fees.

If you own your vehicle, there are no mileage limits. You can be more relaxed with maintenance. You can repair the wear and tear, dents, and dings ... or just learn to live with them. Taking care of your car make sense, of course! But when you own it, the dealer isn’t going to hold you accountable for it.

Monthly payments - Short-term versus long-term costs 

Would you rather have a lower monthly payment — or pay less overall in the long term?

Leased vehicles typically have lower monthly payments than financed vehicles. They may also have lower down payments. But that doesn’t mean a lease costs less than buying.

Dealers often require leased vehicles to have more insurance than what’s required by state law. Gap insurance may also be required to offset costs in case of a car accident or theft. So, your insurance costs may be higher for a leased car than for a car you own.

In the short term, a lease can be less expensive. But over the long term, ownership is less expensive, since you can keep the car for as long as you want. Plus, you can recoup some of your investment in the car by selling it.

Deciding whether to lease or buy a car depends on your financial situation and how you plan to use the vehicle. One word of warning: before you sign any agreement, make sure you understand it! The paperwork for leasing or buying a car has a lot of fine print.

Do you prefer leasing or buying your cars? I’d love to hear how you decided which path was best for you.

Drop a comment below and tell us your story.