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Should I Buy or Lease My Car?

These days, unless you live in a large city, having a car to get around is a necessity.  Knowing this, one of your key decisions could be whether to buy your next car or lease it.  Although choosing the best option will be influenced by personal preferences on many levels, it is important to understand the differences between the two options before making your decision.

In a perfect world, your most economical option is to buy a car outright and drive that car for as long as it will run.  Given the quality of today’s cars, this means you will have years of no car payments, which obviously dramatically lowers the cost of car ownership.  When buying a car, you don’t have mileage restrictions like you do with a lease.  A typical lease can have restrictions of 9,000 to 15,000 miles a year.  If you exceed your contract stipulated mileage limit, you will be subject to what can be sizeable overage fees.  To that same point, there will be no other surprise fees at the end of the lease term if you buy your car.  Even though you remain under factory warranty with a lease, you are still responsible for maintenance of the car and excessive wear & tear upon return.  Buying also helps eliminate some of the intimidating and unfamiliar terminology in leasing contracts.  Another advantage is that you have some flexibility when you buy your own car.  You can modify and makes changes to your car as you see fit.  You also are able to sell your car at anytime and recoup some of the money you have invested in it.

Unfortunately, not everyone can afford to buy a new car and drive it for its entire life.  One of the biggest benefits of leasing a car is that it allows you to drive a more expensive car for a lower monthly payment.  When you lease a car, you only finance the residual value of the car (car value – what the car is expected to be worth at the end of the term) compared to the entire value of the car when buying.  This leads to a much lower monthly payment.  In most cases, there is little to no down payment when leasing and you incur a lower sales tax.  There is also some more clarity down the road when you are leasing a car from the standpoint that you know once the lease is up, you turn the car in and move on.  On the other hand, when you buy a car you don’t know how long that car is going to run, what type of investment you are going to have to put into the car for normal maintenance, and you are responsible for the sale of the vehicle when you decide to get rid of it.

Although there is no black and white answer to whether you should buy or lease a car, by personally considering each of the factors above, you will be better equipped to make this decision.

Written by

Andrew Molnar, CFA®

Andrew is a creative, out of the box thinker with a good eye for detail. In addition to being a member of the Investment Committee, Andrew works on trading, building client relationships, and heads the New Business Development Committee. He is focused on continued education as he successfully completed the Chartered Financial Analyst (CFA) Program and is a Chartered Financial Analyst charter-holder.  He is also an avid reader of all things business, economics, and human behavior.

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