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Buying vs Leasing a Car. What Should You Do?

Drivers in the market for a new car today are increasingly facing a tough decision: lease vs buy. But taking a close look at your needs will make this call a snap.

This page:

Explains how vehicle leasing works

Lists pros and cons of leasing a car

Helps you make the lease vs buy decision.

If you're looking at new cars, chances are that leasing has surfaced as an option. Car dealers and manufacturers alike push auto leasing pretty hard. But what's the scoop on leasing from the buyer's point of view?

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How a car lease works

Leasing a car is the same as renting one, only subject to a few terms and conditions. You sign a contract to keep the car for a certain time period (usually two or three years), keep the total mileage under a limit (usually 10,000 or 15,000 miles), and to maintain the car in top condition.

In return, you have a monthly payment that covers use of the car, depreciation and a "money factor" (like an interest rate). And when the term's up, you return the car to the dealership.

The main drawback to leasing is, of course, that at the end of the lease term, you've paid thousands of dollars and own nothing. And it's traditionally been pretty easy for car dealers to overcharge lessees with confusing added fees and contract conditions. (But the federal government is actively trying to put an end to these unethical practices.)

So there's a very good reason that leasing is often pushed at the dealership: it makes them a lot of money. Why then, do potential buyers ever opt to lease? Because for a certain type of driver, it can make good sense.

Buying versus leasing a vehicle

While auto leasing isn't for everyone, it can benefit drivers with certain habits. Here's our lease versus buy analysis:

If it is very important to you to drive the latest model car (and you're willing to pay for the privilege), and you're a driver who can both keep your mileage within a certain range and treat your car with kid gloves, leasing may be a reasonable option for you.

This is particularly true if you'll be using your car for business purposes and can reasonably claim it as an expense. And, of course, your credit must be excellent.

If this profile fits you, and you don't mind committing to renting perpetually, leasing may make financial sense. Just be sure you all the conditions, because leasing can get pretty expensive if you start racking up high-mileage and early-car-return fees.

However, if you don't like the idea of making car payments but never building any equity, and plan on keeping your new car for more than three years, you're better off buying. This is also the case for drivers who put a lot of mileage or general wear and tear on their cars.

The bottom line is this: leasing can be cost-effective for the perfect candidate. But for most consumers, it's not. Don't opt for a lease unless you know it's right for you. You could end up paying as much for the privilege of driving a car as you would to own it outright!

The cost of insurance

Don't forget to figure the cost of auto insurance into the overall price of your new car. Premiums on new vehicles can be pretty high, depending on your driving history, age, and credit.

Also, if you are buying or leasing a new car, you should seriously consider auto gap insurance to help cover the gap between your policy's coverage and your vehicle's actual value. There is much more information in our extensive auto insurance guide.

More help

Price new cars, search used cars online with Autobytel. Or find a low-cost online lender. You'll be able to go into the dealership, with cash in hand and get the best deal!