By Robyn A. Friedman
City & Shore Magazine
Buying a car versus leasing it. It’s one of life’s most perplexing questions — and one faced by millions of people each year.
“It’s not a simple answer,” says Anthony D. Criscuolo, a certified financial planner with Palisades Hudson Financial Group in Fort Lauderdale. “People don’t really understand all the ins and outs of interest charges, the residual value and what’s better for their particular situation. It’s kind of a complex math equation.”
Experts say that the decision to buy or lease depends not only on the financial terms of the particular deal but also upon your lifestyle.
“If you’re going to be in the car for a long time, buying almost always makes more sense financially,” Criscuolo says. “But if you want a new car every three to five years, leasing may make more sense for you.”
With dealers offering enticing end-of-the-year deals, how can you determine what’s right for you? Here are some general guidelines.
Buying: When you buy a car, you have complete flexibility. You can sell it or trade it in at any time. With interest rates still at historic lows, financing a car is more affordable today than it was in the past, and the interest rate you’ll pay is often lower than the internal interest rate of a lease. Plus, once you pay off your loan, you’ll be left with an asset that has a residual value — and no monthly payments. Of course, to purchase a car, you’ll generally need a larger down payment than if you leased the same vehicle. And, Criscuolo says, payments on a purchase are often higher than lease payments because you’re paying off the full value of the car, not just the value of your usage during the lease term.
Leasing: When you lease a car, you’re paying only for the depreciation of the vehicle during the term of that lease, plus interest. As a result, you’ll likely have a smaller monthly payment than if you financed. At the end of the lease, you’ll turn in the car, so you’ll be left with nothing — no car to trade in — just another lease payment if you decide to lease again. But, because you’re only paying for the period you’re driving the car, leasing often allows you to drive a nicer car than you could if you purchased it outright. Leasing does have some disadvantages, however. First, you’re locked into a definite term, with little flexibility. If you want to break the lease early, you’ll pay a termination fee. Similarly, you might face charges at the end of the lease for excess wear and tear or mileage.