Should You Lease or Buy a Car?

There are pros and cons to both options and the answer always depends on each person's unique situation

When you finance a car purchase, your payments reflect the whole cost of the car, amortized over the term of your loan. Like the monthly payments on a mortgage, monthly car payments are divided between paying what you owe on the car and the interest cost. Since you're financing the total cost of the car over, let's say, four years, your payments can be quite high.

Monthly payments are lower when you lease because the "buyout" or portion you owe at the end, isn't part of your regular monthly payment. That means you can get into a more expensive car for a lower monthly payment than with a loan. That can be a good or bad thing, depending on how disciplined about how much car you need. For business owners, leasing a car can offer tax advantages if the vehicle is used for business purposes.

Plan to change your car frequently? Then lease will be better for you especially on high-end cars. Most cars and trucks depreciate about 50 per cent in the first three years, so when you lease an expensive car for three or four years and then return it at the end of the lease, the leasing company eats the depreciation.

If you do lease, you have to respect the number of kilometres allowed over the life of the lease or you'll pay big-time. And make sure there are no dents in the vehicle and that the brakes and tires are good shape in order to turn back the car, which many people do since most people don't have the cash to buy the vehicle. Keep in mind that some finance companies offer the option of financing the buyout - and if you can get a really low rate, you can lease and then finance the buyout to own.

Buying a vehicle may mean spending less money overall than leasing, but you have to count on keeping your vehicle longer. The cheapest way to own a vehicle is to lengthen your trading cycle - so now you're looking at an eight to ten-year cycle. Now your main expenses are the loss of value of the vehicle and your repair costs.

While some people consider leasing as a "monthly payment for life," and loans to be finished when the final payment is made, I've found that leasing has worked for me, mostly because I finance the buyout at the end and because the rates I've paid have been very reasonable. Ken and I just financed the buyout on his vehicle at 0.9%, which I can live with.