Question of the week:I'm shopping for a new car and the low monthly payments I'd get by leasing are very attractive. What's your take on leasing a car compared to buying one? --PL
Dear PL,
Those comparatively low monthly payments are exactly what motivate so many people to lease, but you need to look deeper to really understand if leasing or buying is better for your situation. When we asked members of the Armchair Millionaire community about their opinions on buying versus leasing, we got responses in favor of both options. Here are two examples:
"I lease, and I'm very happy with it. We like to get new cars every three or four years, and we don't want to worry about negotiating the trade-in price on the back end, or about costly repairs on an older car. Meanwhile our payments are lower. I have no problem 'renting' a depreciating asset." --Nick
"Buy a good quality car with a reputation for lasting at least 10 years or 200,000 miles and drive it until it won't drive any more. Many folks fret that an older car is always costing them money, in terms of occasional $200 - $500 repairs. But the sad fact is that leasing costs most people that much every month for forever." --Michael B.
In general, leasing might be right for you if:
- For business or personal reasons, you must drive a new or near-new car.
- You drive less than 15,000 miles per year.
- You are able to count lease payments as a business expense.
- You keep your car well maintained and in good condition.
- You're willing to pay more over the long run to avoid the hassles of repairing and selling an older car.
If you decide that you would benefit from leasing your next car, use my checklist to ensure that you get the best deal and minimize extra charges.
The Armchair Millionaire Checklist to Smart Auto Leasing
- Negotiate, negotiate. Just as you should never pay full price when buying a car, you should not agree on a lease that is based on the full sticker price. (In a lease, the "capitalized cost" is the equivalent of the selling price.)
- Look at alternative deals. You don't have to use the dealer's leasing company. Investigate leasing options through independent leasing companies, as well as your bank or credit union, to get the best terms.
- Don't get bushwhacked by fees. Be prepared to pay a range of fees, which can include a security deposit, an acquisition fee (an administration fee charged by the leasing company), a disposition fee (to compensate the leasing company for the expense of selling the car at the end of your lease), sales tax, as well as all the other fees you must pay when you purchase a car, such as registration, license and title fees.
- Make sure the vehicle remains under warranty throughout the lease. If you choose a car with a 36-month warranty, for example, the term of your lease should be no longer than 36 months.
- Be ready to commit to the entire term. If you decide to end the lease earlier than the term specified in your contract, you'll have to pay very high early termination charges.
- Understand "excessive wear and tear." If you turn your car back in at the end of the lease with damage that is greater than "reasonable" (as defined by the leasing company), you'll end up paying a stiff penalty. Know in advance what the leasing company will classify as normal wear, and what it will classify as excessive.
THE BOTTOM LINE: To make a wise decision on whether to buy or lease, look at all associated costs--not just the monthly payment--weigh in your personal circumstances, and then decide if what you get is really worth what you'll pay.
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Posted by: Account Deleted | September 27, 2011 at 10:09 AM