Should i lease or buy a car?

The definition of a lease is usually defined as a rental agreement whereby you pay monthly installments covering interest and depreciation of the value of the car. In 1990, just ten percent of cars that drove off the lot were leased. A decade later, one in three were.

There are some advantages to leasing: low down payments (you can often negotiate a better deal than initially offered), low monthly payments (as you’re only paying off the car’s depreciation and not its full value) and easy turnover (no trade-in or selling headaches for you). And there are tax benefits. When you buy a car, you pay sales tax on the entire value of the car. When you lease, you pay a use tax on just the amount of value that you will use up during the lease.

There are also disadvantages to leasing you should consider: You build no equity (your payments do not go towards owning anything), have little flexibility (bailing out early could cost you as much as six extra months of payments), and face high fees for each mile you drive over a certain limit (typically 12,000 to 15,000 a year) and for excess wear and tear. Leasing a car can bring on higher insurance rates since you may require more coverage than you’re used to paying. And you need excellent credit to be accepted as a lessor.

Leasing makes sense if:
° you need cash.
° you want new wheels every three years or so.
° you drive fewer than 15,000 miles a year and maintain a car in
good condition.
° you are able to deduct part of your car’s depreciation from your
taxes. Interest paid on loans to purchase a car is not deductible but
depreciation as well as the implicit financing costs are.
° you are easy on a car.
° you have a clear idea where you will be in two or three years (and
don’t expect to bail early).
° you trust the company with which you’re entering a complex
financial relationship.
Purchasing makes sense if:
° you have cash and reserves.
° you want new wheels every seven or eight years.
° you drive more than 15,000 miles a year.
° you value the flexibility of being able to bail out of a relationship.