Lease or Buy?
Many people are attracted to car leasing because of its low monthly payments — typically about half the amount of loan payments for the same car, same term. And there’s ordinarily no down payment required.
However, many of those people drive too many miles for leasing. Leases allow about 10,000-12,000 miles per year, or 30,000 to 36,000 miles for a typical 3 year lease. If you drive more than that amount and like to keep your cars for many years, leasing may not be right for you.
Leasing also requires that you take good care of your car, taking it in for regular maintenance and repairing any damages before lease-end. You are not allowed to modify or customize the car.
You pay normal tag, inspection, and registration fees for a leased vehicle. You may also pay property tax in some states, even though the vehicle is technically owned by the lease finance company.
Since lease payments are so low, you don’t build ownership equity as you would if you purchased with a loan, which means when the lease ends, you essentially start over with a new lease or purchase.
Required full coverage insurance pays for accident damage and GAP insurance that comes with a lease pays off your lease balance if your car is stolen or totaled in an accident.
In most states, when you lease, you pay sales tax only on monthly payments, not on the entire value of the vehicle as would be the case if you purchased.
There are a couple of fees that are unique to leasing. One is an acquisition fee that is charged up front, and is about $595 or higher depending on the vehicle. Another is a disposition fee of about $350 that is charged at lease-end if you return your vehicle.
It’s important to have a stable lifestyle when leasing such that you will not need to end your lease early. Because payments are low, a lease is nearly always “upside down” — which means the early termination payoff is usually very large.
In summary, make sure you understand how leasing works, what it requires, and if it’s right for you before you make your lease versus buy decision.