Whether you should buy or lease depends on many factors, from your general lifestyle choices to how much you can afford in monthly payment. Learn more about these and other factors before deciding whether to buy or lease, and get the best car for you. To better understand the pros and cons of buying versus leasing, consider the following questions:

• Are you looking for low monthly payments?

  If you like the idea of lower monthly payments, leasing might be for you. In fact, because of the lower monthly rate, leasing allows you to drive the kind of hot little sports car or luxury vehicle you could only dream of buying. But the key here is "drive" - with a lease, you don't own the car.

   

• Are you looking to increase your equity?

  If so, then buying is the way to go. Leasing essentially means you're renting a car for a long term, which gives you no equity - and no ability to sell the car later, of course.

   

• Is your credit rating less than perfect?

  If so, buying may be a better option for you.

  Most leasing companies require a good credit rating - after all, they're lending you their property.

   

• Do you like the idea of driving a new car [that is under warranty] every few years?

  Then leasing might be for you. When your first lease is up (after one or two years), you can lease another newer model, or try a different car altogether. In this way, you will always drive a brand new car that is still under warranty, which means you can probably count on greater reliability as well.

   

• Do you have your own business?

  If you run your own company or do freelance work, leasing might be more advantageous to you than buying. The government provides tax breaks for those who lease a car for business purposes. Ask your accountant for more information.

   

• Do you drive a lot of miles, or want the freedom to drive as much as you like?

  If so, then you'd be better off buying rather than leasing. Leasing companies keep strict limits on the number of miles you can drive, inhibiting your driving freedom.

   

  Following are the advantages of leasing rather than buying a car.

   

  • Monthly Payments are Lower. With monthly payments up to one-third less than those of a new car, you can end up driving a more expensive car than you can actually afford.
    So go ahead and get that hot little number—just remember it’s only a temporary dream-come-true (unless you’re in a position to buy the car at the end of the lease).

     

  • New Leased Vehicles are Under Warranty. Typically, you would lease a car for a period of three years or less. If it’s a new car, that means the warranty will still be in effect. So you needn’t worry about all those big maintenance bills that start cropping up with older vehicles.
     

  • You Can Switch to a Newer Model More Often. Leasing allows you to have a brand new car every couple of years. If you like the image that idea projects, or if you simply like the thought of always driving a new car—for safety, or other reasons—then leasing might be your best option.

     

  • You Never have to Worry About Re-selling it, or Trading it in. Some people dread the thought of having to get rid of a car once it’s over the hill. They don’t want the hassle of preparing the car for resale, of advertising and then having to show the car. With a leased vehicle, these responsibilities lie in the hands of the “lessor” (leasing company).

     

  • You Don’t Have to Worry about Depreciation. With a lease, the cost of your monthly payments has already factored in the car’s depreciation, which is why your rate is so much lower. At the same time, in terms of the car’s depreciation, it’s not your money that has gone out the window (since you never bought the car in the first place).
    Think of leasing this way: you’re getting a good monthly rental rate (imagine how much more that car would cost to rent from your typical rental car company!).

     

  • You Can “Test Drive” the Car for a Long Period. In other words, if you’ve had your eye on a certain car, but would like to “live with it” for a year or two before purchasing it, leasing might serve your purposes. Just make sure you have a “buy out” clause put into your contract, allowing you to purchase the car outright (if you wish) at the end of your lease.

     

  • Leasing Can Offer Tax Advantages if used for business purposes. Contractors, freelancers, or those who own their own businesses would be advised to discuss these tax breaks with their accountants.

     

  • If You’re Looking For Even Lower Monthly Payments, You Can Consider Leasing a Used Car. Instead of buying a used car (and worrying about what might go wrong with it), you can be part of the growing trend and choose a “re-leased” car. Many come with extended warranties, or have been reassessed and backed by the automaker.

   

  Pros of Buying versus Leasing

  • While the monthly payments are lower with a lease, the overall cost is higher than if you bought the car. Yes, with buying your monthly payments are higher than if you leased (by as much as a third).

    But at the same time, if you buy, the money you spend is being invested in the car—your car. A car you can sell now or later, and thereby recover some of what you’ve spent.

     

  • Taxes must be paid, whether you lease or buy. Which means you might as well buy—at least that way you’ll have something to show for the money you’ve handed the government. Many leases require payment of the sales tax.
    But why pay for something you haven’t even purchased? And there may be additional taxes involved in leasing as opposed to buying, including luxury tax (if the car you’ve leased is considered a luxury car), and even a monthly tax based on the use of the vehicle.

     

  • If Your Credit Rating is Less than Perfect, it May be Easier to Buy Rather than Lease a Vehicle. Those who wish to lease must “qualify” for it. “Lessors” (the financial company) are less keen than other lending institutions to take chances on those who appear to them “unworthy” or “irresponsible”. This is because they—not you—own the car, and therefore feel the need to protect their investment.

     

  • Buying Gives You a Wider Range of Insurance Options. This point is similar to the last one. Because they own the car, leasing companies may demand certain insurance requirements be met before lending you a vehicle.
    However, with buying, you are open to a wide range of insurance options, allowing you to get a better deal—and that can mean substantial savings.

     

  • Any Money Invested in your Vehicle Remains in your Hands. Let’s say you decide on a no-frills GMC Sierra, then realize you can’t live without a CD player. If you’ve bought the vehicle, this turns out to be an investment; whereas if you’re leasing, the investment belongs to the leasing company (unless you choose to buy the vehicle at the end of the leasing term).

     

  • Buying Allows More Payment Options, Allowing You to Finish Your Payments Earlier. Let’s say you’ve decided to lease a car for two years because you want the low monthly payments. Then, after a year, you find a better-paying job. With a lease, you’re in it for the long-run; in other words, it will be very difficult, if not impossible, to get out of your contract. Whereas if you buy the car, you can decide to pay off your loan more quickly (avoiding all that interest), or even sell it if you so desire.

     

  • Buying Gives You More Freedom. Of course, it depends how you look at it. If you associate owning with being responsible, then leasing might make you feel freer. But keep in mind the fact that leasing companies have strict limits on how many miles you can drive. They are also pretty sticky about things like dents in doors, cracks in the glass, and other minor mishaps.