To Lease, or to Buy?

When thinking about acquiring a new car, should you lease it or buy it? Here is a run-down of the advantages and disadvantages of leasing, plus a list of additional questions to ask yourself.  You can also use BLP’s Auto Calculator to help you decide whether to lease or buy your next vehicle.

Advantages of Leasing

• You’ll pay a lower down payment—Auto dealers will usually let you put less money down on a car you’re leasing than one you’re buying.

• You’ll pay lower monthly payments—When you lease, your monthly payments are covering only the car’s depreciation, not its full value.

• You’ll be able to change cars more easily—At the end of your lease period, as long as your car is in good condition, you’ll be able to simply trade it in for a new one rather than go through the hassle of selling it.

Disadvantages of Leasing

• You won’t be building equity—Your lease payments won’t, of course, go toward actually owning anything.

• You’ll be restricted by a lease—If you want to break your lease, or you drive more miles than you initially estimated, you’ll have to pay for it. You’ll also have to pay for any damage you cause beyond normal wear-and-tear.

• Your insurance may not cover you completely—If you total a leased car or it gets stolen, your insurance will reimburse you only for the car’s market value, which may be less than the amount you still owe on the lease.

Questions to Ask Yourself

• How much do you need your cash?—Leasing allows you to put down less money than if you were buying (and in many cases, car dealers will just waive the down payment). If you buy a car, you’ll probably have to put down 10 percent of the purchase price, in addition to 8.25 to 9.75 percent in sales tax (for California) or whatever the rate is in your location.

• How often do you want to change cars?—Leasing makes the most sense for people who want to change cars around every three years. If you want to change cars either more or less frequently, buy.

• Do you use your car for business?—If so, you’ll be able to claim a much higher deduction for a leased car than one you’ve bought.

• How much do you drive?—Leases are designed for people who drive about 15,000 miles per year: Drive more, and you’ll have to pay for the extra mileage; drive less, and you’ll be paying for depreciation you aren’t causing.

• How much damage do you generally inflict on your car?—Keep in mind that if you lease, you may have to pay for that damage when you turn the car in.

• How stable is your life?—Should a major life change—e.g. a move, a pregnancy, or a new job—force you to break your lease, it’ll cost you: you’ll generally have to pay all the remaining payments on the car (minus allowances for depreciation that hasn’t happened yet).

If you have any additional questions about whether you should buy or lease your next car, please don’t hesitate to contact us via email or call 323-954-3100