What’s the Pro’s and Con’s of buying or leasing a Vehicle?

At end of lease I may have laid out less cash per month but then I still had to buy my next new? vehicle.

But remember that at the end of two leasing cycles, the person who leased doesn't own the car. He or she has to start a new lease-or-buy cycle. Meanwhile, the person who bought a new car would own a depreciated vehicle worth about $11,000, according to the depreciation listed in Edmunds' True Cost to Own (TCO®) calculator. The person who bought the used car now owns a 9-year-old car worth about $5,000.

When we factor equity into the equation, the cost picture changes:

...................................Leasing....Buying New....Buying Used
Total out-of-pocket costs $24,768 $17,830 $15,976

In this basic comparison, it appears the person who leased the Accord paid $6,938 more to drive it for six years than did the new-car buyer. Buying a used Accord saved only an additional $1,854 during this six-year cycle.

Related Expenses
We should point out that the person who leased has escaped the repair and maintenance costs that car owners typically encounter with aging cars. On top of routine maintenance, which is usually just oil changes and tire rotation, the new-car buyer will at least have to pay for new tires and brakes, which would cost at least $1,000. The used-car buyer will have to pay for these items and probably some additional repairs, too.

However, the higher cost of insurance for a leased car offsets the maintenance and repair costs for the person who bought the car. Insurance for a leased car, such as the Accord EX, would be at least $150 extra each year, adding up to $900 for a six-year cycle.

So the person who leases and saves money on extra maintenance costs pays almost as much in extra insurance premiums. It's close to being a wash.

Leasing's Other Advantages
While it is true that the people who lease have no car at the end of the lease, they do have the opportunity to purchase the car at a preset price. The finance company sets the purchase price for the leased car at the beginning of the lease. This offers several advantages.

First of all, leasing protects the consumer from excessive depreciation. So if the market value of the car drops due to unforeseen circumstances, such as rising gas prices, this drop in value doesn't hit the consumer. Conversely, if the lease car holds its value especially well, the consumer can buy the car at a bargain price, and either keep or resell it. In some cases, consumers can leverage equity that they've built up in a leased car.

One other big advantage to leasing is that it offers an attractive tax deduction for someone using the car for business. An accountant is the best resource for more information on this subject.

The Appeal of Ownership
It's hard to put a price tag on the value of ownership. The person who buys a car owns it and can experience the pride that goes with it. Beyond just the abstract enjoyment of possessing a nice car, ownership does offer several other advantages.

You can modify the car exactly as you want without fears that you will break the terms of your lease. Excess wear and tear is not a concern for the car buyer. Also, owning the car gives you more flexibility to sell the car when you want, not when the lease is up.

Finally, there are some other important elements to consider as you decide. These are harder to monetize:

•Leasing provides the enjoyment and prestige of driving a newer car more often.
•Leasing puts you in a new car that has the latest safety, technology and comfort features.
•Leasing in three-year cycles means you are always under the manufacturer's bumper-to-bumper warranty.
•Owning a car allows unlimited driving with no mileage penalty. Leasing limits a person to only 10,000-12,000 miles per year. After that, each mile typically costs 15 cents.

While there are many factors to consider when making the lease-or-buy decision, the best place to start is with the numbers. Do your own calculations, factor in the intangibles and the best decision will emerge.

The only time it is better to lease is if someone else is paying. That means, occasionally for a corporation or business that can deduct the lease cost it *might* be a good idea, but even then not always. For an individual, it is never a good idea. I can imagine some really rare circumstance might make it better, but so rare that we might as well just say never

Joseph_E_MeehanJoseph_E_Meehan
January 2008 edited January 2008

Leasing has many down sides. Usually it cost more in the long run, even if it sounds like it will cost less. It traps you into what you originally agreed on. Any changes are going to cost you. You never have any equity. You can end up owning money on the lease even after you turn it back in. Now that is no fun

, I just figure your always going to have a car payment and if you did buy one and paid it off usually after five years the warranty is up and you have to pay to maintain the vehicle anyway, therefore putting money in an older car which is losing value each year.

What do you think?

I just figure your always going to have a car payment and if you did buy one and paid it off usually after five years the warranty is up and you have to pay to maintain the vehicle anyway, therefore putting money in an older car which is losing value each year.

The sold me on the pretty red and light tan and black interior. Plus just because you buy it instead of leasing doesn’t mean you can’t trade it in three or four years from now.

Now I just have to figure out how to get it to Ca. Maybe I’ll have the Puerto Rican drive it for me.