Buy Vs. Lease: What’s best for you?

Buying has been king at the car dealership recently, but now more dealers are once again promoting the auto lease as the more sensible financial choice. Leasing and buying both have benefits and draw-backs and like any other financial decision there are some considerations that should be evaluated prior to making a final choice. These considerations revolve around your financial situation and your transportation requirements.

When leasing a vehicle the down payment and monthly payments required are usually lower. Additionally, at the end of the lease you may walk away (assuming there was no excessive wear and tear or excessive mileage charges), or buy the vehicle if you have a purchase option in your agreement. Some indicators that leasing may prove most effective for you are if you are self employed (tax reasons), you plan to trade vehicles in less than four years or you have a job, such as a real estate agent, that requires a better vehicle than you may be able to afford to purchase. (You can see the impact from the mix of wants and needs for the consumer in making such a decision.)

Of course, if you are purchasing the vehicle there will be no mileage limitation or penalties for wear and tear. In addition, insurance rates may be slightly lower and there would be no limitation or restrictions for vehicle modifications.

As with purchasing, there are negotiations involved in the lease agreement. Focus on the vehicle’s basic price and lease end valuation, as these are factors of the monthly payment calculation.

While you move forward in your comparison between purchasing and leasing there are four points to keep in mind that may help you in finalizing your decision:

Your initial costs
Your ongoing costs
Your final costs
Your rights and responsibilities in leasing and purchasing

The bottom line is this: if you put a lot of miles on your vehicles (20,000 or more in a year), buy it. If you plan to keep the car long term (longer than three to four years), using it until it ‘falls apart’, buy it.

For more consumer information on leasing and purchasing visit the Federal Reserve Board’s website athttp://www.federalreserve.gov/pubs/leasing/.