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U.S. auto sales set an all-time record in 2015 at nearly 17.5 million units. So maybe you've been holding out, but you may be ready to make a new-car move in the not-too-distant future. Will you be among the roughly 80 percent who purchase that shiny new car or truck, or the 20 percent (and growing) who choose to lease instead? Have you given that much thought?         

Why buy?

Perhaps you have always purchased your vehicles because you enjoy the pride of ownership and the flexibility to keep them as long as you want and sell or trade them whenever you're ready. And if you are among the majority who finance through an auto loan, there's nothing quite like the feeling when it's fully paid off and those pesky payments disappear.

With a purchase you start out with equity in the car -- your down payment. The money you put up to initiate a lease, maybe thousands of dollars, buys you no equity.  As you pay monthly during a purchase you gain more and more equity. At the conclusion of the loan term you will own the car that is likely worth thousands of dollars. You can then continue to drive payment-free or use that equity in a trade-in down payment on a new car. Of course, there are no additional charges for high mileage, and you can modify the car as you want.

On the other hand, vehicle ownership beyond its factory warranty brings responsibility for maintenance and repairs, which can be expensive. Yet that might be worth the risk, especially if those payments run out at the same time the warranty does, so you'll be in better financial shape to handle any issues that may arise. Most new cars and trucks today have such long-term reliability that the risk of major trouble is fairly low, and you can always invest in an extended warranty if you judge its cost as worth the reduced risk (which may not always be the case).

Why lease?

Yet most folks we know who have switched to leasing have found it habit forming. Because a vehicle loan covers its entire purchase price, plus interest, registration and fees, monthly loan payments are roughly that total divided by the number of months. By contrast, leasing a vehicle is essentially renting it for two or three years, and your payments are the difference between its selling price and its professionally projected "residual" value at the end of the lease term (its depreciation), divided by the number of months.

So, depending on the manufacturer's and the dealer's policies, incentives and interest rates in place at the time, plus your credit status and the length of the lease or loan, monthly lease payments are usually lower than loan payments on a comparable vehicle. So leasing will probably enable you to afford a more expensive vehicle. And if your two- or three-year lease term covers the warranty period, there is no exposure to major repair cost beyond that time.

Leasing is a reasonable option for people who want a new vehicle every two or three years, who don't drive a lot of miles, who don't want exposure to major repairs and who have no desire to modify their cars.  It's prudent to avoid lease terms longer than the warranty period, but people do that every day. That's not smart because you might end up paying for major repairs on a car you will never own.  Also, if you circumstances change during the lease term, leases are fairly difficult to shed.

Two other leasing advantages are that you can get a brand new vehicle with all the latest features and technology every two or three years, and you never have to worry about selling a leased vehicle. If you take good care of it and return it in good condition (and don't exceed the annual mileage limit), you can simply turn it in and walk away...or drive away in your next new vehicle. Or, if you like it well enough to keep it, you can purchase it when the lease is up at its depreciated used-car value. Two disadvantages are that it generally requires stronger credit to lease than to buy, and end-to-end leases mean those payments never stop.

The Checklist

Leasing pros:

Lower monthly payment

No hassle (hopefully) disposal of car at end of lease

New car more often

 

Leasing cons:

No equity

Mileage restrictions

No ability to modify

 

Buying pros:

Gain ownership of car, a valuable asset

Ability to modify

No mileage limits

 

Buying cons:

Higher monthly payment

Potential disposal (selling) hassles

Responsibility for repairs beyond warranty period


 

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