It is a very common question: Should you lease or buy your car?
Leasing new cars is on the rise.
The amount of people leasing their automobiles is on the rise. 34% of all drivers in the market for a car are choosing to lease instead of purchase their next set of wheels. Five years ago that number was only 12%.
An executive with Kelley Blue Book told the Los Angeles Times, “There’s an undeniably increasing sense that, just like how a TV or computer becomes obsolete relatively quickly, that’s happening with cars too.”
People want to toss their “old” cell phone after a year or two and so it seems that attitude has found its way to the car lot.
Whatever the reason – technology, maintenance costs, monthly cost savings – increasing the number of leased cars on the road to over 4 million, the question you want to answer is, “Is it right for you and your family?”
How do you know if you should lease or buy your car?
Here are a few things to consider:
1. Whether you lease or buy a car, it is not about right or wrong
This decision is a personal choice. It’s kind of like a home. Do you own or rent your home? It is a personal choice. There are pros and cons to each solution. The same is true with a car lease or purchase.
2. When should you lease?
There are several advantages to leasing. A leased payment as opposed to a financed payment is 23% less on average. So we see a huge group of millennials choosing to lease because their payment is less. A car payment is a lot of money if it is their first job and they are commuting and starting a family and finding a house.
Also, leasing makes sense if you are someone who enjoys having a new or newish car. If you or your spouse is the “car lover, every 3-5 years you may get an itch for a new car. If that’s the case, the best thing for you to do is lease because if you buy a car and sell it within 3-5 years, you’re not going to get the money back out of it. So leasing makes sense for the car-noisseur. (See what I did there?)
Another good time to consider a lease is if you own your own small business. A lot of business owners, like us, like to lease cars because it is a good tax decision to do so. You can write off all the payments, not just the miles.
We have a dedicated business car and a “kid car”. Our Ford Expedition is our “kid car”. We put 25k miles on it a year. With our business car, it’s kind of just open for whoever needs to use it. We never found leasing as a good option for us personally but we’re the type of people that stick with a vehicle till the wheels fall off, literally.
3. When should you not lease?
Penalties and fine print are one reason not to lease a car. One of the things you have to be very aware of is mileage.
“Watch the miles, watch the miles, watch the miles.” When you lease a car you get it at 10, 12.5, 15, or 20 thousand miles. The more miles you buy, the higher the payment. But, the average mile overage fee is 20 cents a mile, which adds up quickly. If you go 1,000 miles over what they allotted you, it’s another $200. Watch those miles!
There is a bit of risk in leasing if for some reason your situation changes and you can’t afford to make the payments. There is usually no clean way out of a lease contract. You might be required to make all the remaining payments and fork over an early-termination penalty.
So it pays to consider your current financial position and speculate, as well as anyone can, how your next several years may look monetarily.
Lease or buy, you need to agree.
Either way, there is no right answer. But there is a wrong way to make the decision. And that’s without consulting your spouse.
Make sure you are on the same page!
We have this couple right now that is in a fight over this. The husband came home with a new car and said, “Look, honey.” She loved the look of the shiny new car until she found out he leased it. His defense, “I leased it, no big deal!”
She said, “I don’t believe in car leases. I don’t think you should either.” And so now they are arguing about it. (I think I’d avoid long car trips in it–imagine the tension.)
So, most of all, make sure you and your spouse are on the same page about whether to lease or buy. Or be like us. One of each is the best way for us to go.
A car is not worth a fight or making your spouse feel he or she is not included in a major purchase decision. Tension over an automobile is worse than four flat tires. Avoid both at all costs.
Have great advice about leasing or buying your favorite car to share? Leave them below!
Taylor & Megan Kovar
The Money Couple