Do not run out and lease that expensive sports car! Unless, of course, it's for business or tax purposes. Or the dealer is offering a great deal. Or, if you're more interested in a hot new car every few years and hate the upkeep of older cars.
Truth is, there's a lot of conflicting advice about whether or not you should lease a car. We're here to help. Your answers to the 10 questions below will determine if leasing a car is right for you.
1. Do You Know the Difference Between Loan and Lease?
Some people buy a car, new or used, with cash. Most rely on a car loan, whether from the bank or via dealer financing. Pay off the loan, typically with 48 or 60 monthly payments, and the car is yours.
A lease is a bit different. You never own the vehicle. You drive it for a fixed period, usually between two and four years, then return it back to the dealer at the end of the lease period. Because you return the vehicle, and thus own nothing, lease payments are often much lower than loan payments.
2. How Much Does it Cost to Lease a Car? Really?
Before considering leasing a car, tally up the total cost of what's due at signing, the total monthly payments for the length of the lease, and any required payments or fees due when it's time to return the vehicle.
It's also important to know how much extra you may owe should you drive more than the allotted miles or return the car with damage. Also, remember that just because it's a lease, you ll still need to buy insurance and pay for regular maintenance, such as oil changes.
3. Do You Know Yourself?
A leased car enables you to drive "more car" than you could purchase outright. At the end of the lease period, however, you must turn the car back in. You owe nothing -- but you also own nothing. Does the thought of all those payments and zero equity not sit well with you?
4. Is Your Tax Situation Complicated?
For some people, particularly those with higher-than-average incomes and/or who own their own companies, there are significant tax rewards that may come from leasing a car. If it's used for business, per IRS rules, you may find that leasing is a better option. You'd compare the write off for the vehicle's depreciation plus your auto loan interest expense to that of the lease payment. Keep in mind that for tax purposes, depreciation of "luxury vehicles" is capped by the IRS, and that there is a "lease inclusion" deducted from the lease payments.
5. Is a Down Payment Hard To Wrangle?
If it's tough for you to come up with a down payment, leasing may be the best option. Many lease deals come with a very low initial payment, and monthly payments are typically less than the monthly loan payment for the same car.
The down payment on a new car can run from five to 20 percent of the car's retail price. LendingTree can walk you through the auto loan process.
6. How Do You Feel About Car Maintenance?
Leased vehicles are typically covered by the manufacturer's warranty, so you are unlikely to ever face major repair costs, such as a faulty transmission or engine alignment. You need only worry about minimal maintenance, as specified in the agreement. These are things like oil changes and tire rotation.
7. How Bad Is Your Commute?
Leased cars nearly always have a mileage limit, typically about 30,000 - 45,000 miles per three-year lease. This is fine for most drivers, but if you are likely to exceed this, know that dealers may charge upwards of 25 cents per mile for each mile over the limit. That adds up.
8. Will Your Children Be Driving Soon?
You should expect your new car to last a good ten years, maybe much longer. If you can afford the down payment, the monthly payments over the life of the loan, typically about five years long, and are prepared to maintain the car, you should strongly consider buying. Even if you get tired of the car, chances are your teenagers will appreciate having a car of their own.
9. Do You Love the Coolest Features?
With a leased car, you get to drive a new car with newer features and the latest technologies, hopefully also the newest safety features as well.
10. What's Your Credit Score?
Leasing a car typically requires a good credit score. Remember, the dealer is letting you drive off a brand new car from their lot with not much down and a promise to return it in good condition after a set period. That's not a risk that can be ignored. If you have a bad credit score, leasing may not be your best option. So make sure you know your credit score.
Whether you buy or lease, LendingTree has tools to help you find the right car and get the best deal.