auto

Buy or lease -- which works best for you?

Wow! A brand-new car for only $179 a month!

You're enticed by newspaper and TV ads that promise the car of your dreams for a low monthly lease payment. It looks so much more attractive than buying a car the conventional way of putting down 20 percent and driving off with a fat payment book.

But if there was ever an instance when the phrase "buyer beware'' applies, it's in deciding whether buying or leasing is right for you.

Leasing pros and cons

Leasing is a good move if you're someone who wants the very latest model, puts fewer than 12,000 to 15,000 miles a year on your car and maintains it religiously. With those conditions in place, leasing generally offers lower monthly payments or allows a buyer to get a more expensive car for the same monthly payments he would make in a conventional financing deal.

But you never own the car -- it's the property of the leasing company -- and at the end of the lease you have to give it back and walk away with nothing, buy it outright for the residual value set in the contract or trade it in for a new car and a new lease.

Buying pros and cons

Buying comes with some obvious pluses. Drive the new vehicle right and take care of it and it can retain significant value when you finish paying for it. After about three years it will probably be worth more than you owe, in case you want to get rid of it.

But if you're like most people, you'll likely extend the financing to at least four and more likely five years, meaning you'll be making payments on a car that at the end may well have started to deteriorate.

Five easy questions

To decide which option is best for you, before you begin shopping for a specific vehicle, answer these questions honestly:

1. Do you drive more than 12,000 to 15,000 miles a year? Remember, be honest. If you drive more than that, leasing isn't for you because you'll end up paying hundreds or thousands of dollars in extra-mileage fees.

2. Do you mind always having a car payment? If not, leasing may be right for you. It will allow you to get a new car every three years without making a substantial down payment.

3. Do you take good care of your vehicles? And generally avoid parking lot dings and fender benders? If you don't, then buy, don't lease, because lease contracts require you return the vehicle in good shape, fully maintained.

4. Do you foresee modifying your vehicle? Then buy, don't lease, because under a lease you don't own the vehicle. Any changes you make could affect its value, and the leasing company will want compensation.

5. Do you anticipate any lifestyle changes? If you foresee marriage or a new baby, for example, during the term of the lease, then buy instead. If you lease that two-seat sports car and two years from now need a minivan, you'll pay through the nose to get out of the lease. You may owe more than the sports car is worth two years into a conventional loan, but you'll likely pay less making a vehicle switch than you would under a lease termination.

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