auto

Pros and cons of leasing

As with every financial decision, there are pros and cons for leasing a vehicle versus buying it. Here's a quick look at them:

Pros of leasing a vehicle

1. You can often get into a lease deal with a lower down payment than that mandated by many purchase plans.

2. Since you're only paying off the depreciation on the car's value (plus a fee to the leasing agent), your monthly payments may also be less than buying the car.

3. The end of the deal is generally a snap. Rather than having to hassle to sell a car or trade it in on a new one, you simply bring it back to the dealership or leasing agency.

Cons of leasing a vehicle

1. The first is akin to the advantages of owning a home rather than simply renting it -- you're building no equity.

2. You'll never be without a car payment, while someone who buys a car and takes care of it can enjoy several years of driving without having to fork over any dough.

3. Getting out of a lease prior to its designated termination date can be prohibitively expensive, as many leases levy steep penalties for early returns.

4. Leases commonly charge you extra if you drive more than the number of miles specified in the lease.

While you can usually get more car with a lease than you can with the same payment on a purchase, that's less true than it used to be. Due to market forces and the overall economy, leases are relatively more expensive than they were a few years ago, while loans are relatively cheap.

There are other issues to bear in mind. If having the newest model of a car is of value to you, then it's hard to argue against leasing. After all, few of us have the financial resources to plunk down cash to buy a new car every few years. Additionally, there are tax considerations. If you lease a car and then use it for business purposes, you can deduct depreciation as well as interest on the lease, something you cannot do with a conventional purchase arrangement.

Leasing versus buying an automobile is often a difficult choice. Here's a list of additional elements to consider when choosing whether to lease or buy:

Checklist
  • If you tend to be rough on cars, you may do well with buying. Leasing agencies expect their cars to be returned to them in top-notch shape -- anything beyond an expected amount of wear may mean additional fees for you.
  • Car insurance can be a bit trickier with a leased vehicle. If you destroy the car or it's stolen, there's always the chance that your insurance coverage may not cover all that you still owe to the leasing agency. To protect against this, look into gap coverage to address any potential shortfalls in your coverage.
  • Poor credit may also make it more difficult to get a lease or, at the very least, to get one with reasonable terms. Granted, bad credit affects you no matter if you're buying or leasing, but it's particularly problematic when you're shopping for and attempting to negotiate a solid lease plan.

On the surface, leasing may appear to be a rather straightforward proposition: Just set up the terms of the lease, length and a schedule of payments and that's it. In many ways it can be more confusing and mandate just as much negotiation as the most complex purchase arrangement.

Use Bankrate's leasing worksheet and glossary to help you compare leasing arrangements. It will help you gauge costs and familiarize you with some of the central terminology involved in leasing. That, in turn, may also give you a handle on the relative financial ramifications between buying and leasing.

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