By: Greg SánchezShould you buy or lease?  What’s better?

In my many years of being involved within the automotive industry, no other topic has been questioned or analyzed much as ‘leasing vs. buying’ – in fact, this could very well be my tenth article regarding this issue that still raises questions and make many think hard over it. I guess just like I’ve been doing for the last 30 years of my life, almost everyone on this earth have either paid rent or have a monthly mortgage. Leasing a new car or truck instead of buying one involves a similar set of contemplations; Which option is best for you will depend upon your needs, circumstances and your financial position. Many consumers, in particular my ‘compadres’ or ‘hermanos latinos’ would much rather purchase than lease; it’s a power thang – you know, I own it! Instead of I’m renting it or ‘estoy arrendandolo’.

Here is the deal though… In some ways, leasing a vehicle is very similar to renting an apartment; you pay a monthly fee to use it but don’t own it, and you aren’t making payments toward ownership either. The leased vehicle remains the property of the lessor (the company that issued the lease). As with an apartment rental agreement, a lease will have a fixed period — typically two or three years, though there are longer terms; again, depending on your needs, circumstances and your pocket’s wealth.
Moreover, you’re obliged to make monthly payments for the length of the contract, and while you can get out of the lease before then if you want to, there will be additional costs — an “early termination charge” — typically spelled out in fine prints on the contract you sign. And as is often the case with renting an apartment, you’ll likely have to come up with some cash as “security deposit” at the lease inception. This money will be used to pay for any damages to the vehicle — such as door dings, stains on the seats, any needed service work, etc., when you return it at the end of the lease.

So then, why do it?

Like I said earlier, this is the most important issue and the one that has many still doubting all the benefits or seeing the advantages. If you don’t own it and still pay for, why lease in the first place? The big benefit is, of course, flexibility. You aren’t making a long-term commitment. When the lease period is up, you can simply bring the car back and walk away, or you can buy it if you like by paying off the remaining balance — called the “residual value” — which you’ll negotiate in advance at the time of lease inception.
Also, since you are only effectively renting the car, your total cash outlay it’s almost always much less. You won’t have to make as large a down payment (a security deposit and the first month’s payment are usually the typical way to go) as you would if you were buying. And monthly lease payments are on average less than payments would be if you bought the car — which means you’d have more money in pocket to spend on other things. Or, if you prefer, you can usually afford to drive a more expensive car when you lease, since the monthly payments will be fairly lower.

This is one of the biggest single attractions of leasing for many people, yet for my ‘hermanos and compadres latinos’ this issue doesn’t seem to be that much of an attraction. A car (or truck) that might cost you in upwards of $400 to $500 per month to buy could be more than $100 per month less to lease, in some cases between $200 & $300. A very attractive and major benefit of leasing and one to hold responsible for the overwhelming popularity of leasing is that you’re always driving a new or nearly new vehicle, and you won’t have to worry about the major repair and maintenance problems that inevitably occurs as a car ages and falls out of warranty. The leased car will typically be under factory warranty for the duration of the lease, and many lease contracts have add-on provisions that cover routine maintenance, such as oil changes, etc.  It’s highly unlikely you’ll have to put in a new transmission or anything like that outside of the warranty.

Another benefit found for business users is that leasing may also have tax advantages. I always knew from the very beginning that many people who used their vehicle for business, and who therefore could claim deductions not available to those who purchased them outright entered into leases. I did! Specially after consulting my CPA about all the different and/or specific deductions I could take or benefit from from leasing. Also talk to your financial planner, if you have one: Leasing has the added attraction of freeing up assets for investments so that you could put your money to work and not have it otherwise be locked into a depreciating asset — your automobile or truck.

OK, so when does buying becomes more attractive or makes more sense?

Everything has its ups and downs and of course leasing a car is no exception. Since you’re only making what amounts to rental payments each month, you won’t have anything tangible to show for your money at the end of the lease. And that’s where my ‘compadres’ are in agreement with me, for a person who buys his and or her vehicle, in contrast, has the comfort of knowing that at the end of the loan agreement, whether is 36, 48 or 60 months, it will be paid for and, presuming it is still in good shape at that point, the vehicle will be free transportation until it breaks down or the owner decides to get rid of it or better yet, a person who owns his or her car has equity (value) in the car or truck. Even though it will depreciate with each passing year, so long as it’s still serviceable transportation, it will always be worth something. It will have a trade-in value towards the next vehicle purchase, and that seems to be the biggest attraction of purchasing it.

But wait! This is important; The mileage issue. If you lease, your contract will typically specify the maximum number of miles you’re allowed before the end of the lease. If you exceed the figure, it can get very expensive. Per-mile charges over the stated maximum are often very expensive — so if you drive more than about 12,000 miles annually, leasing could be a dreadful move for you financially, although there are different ‘addendums’ in today’s lease agreements that can bump up your annual mileage usage to 15,000 and in some cases 18,000 miles, nevertheless, be extremely careful about this. The person who owns his car, meanwhile, can drive it as much as he or she wants, and do pretty much whatever he feels like with it, too. He can upgrade the stereo system, change the exhaust system to make the car sound sportier, add different wheels or rims and tires, tint the windows, whatever your heart desires, and for us ‘latinos’, that is one big PLUS sign. Do this with a leased vehicle and you’ll have to pay the consequences or pay a penalty, or do whatever if takes to restore the car back to its original state. If you own your vehicle, the usual door dings and dents and all the little inevitable mishaps can be shrugged off. People who lease their vehicles, on the other hand, can expect to be charged for every nick, scratch or spill at the end of the lease.

Leasing is also more complex than buying, and people who don’t understand often-inscrutable financial language can find themselves on the short end of the stick. Always closely read and be sure you understand every stipulation and prerequisite of the lease agreement before you sign it. Mull over all the angles before you decide, and remember these very important tips:

a. If you are into getting a new vehicle every two or three years, lease it. If you plan on driving it longer than three, then purchasing it may be your best bet. However, since new cars and/or trucks lose their value very quickly, buying a new one every three years is definitely not the way to go – you’ll lose money. To save money in that case, lease it!  Conversely, today’s automobiles are manufactured so well (in most cases) that they can easily last with the proper maintenance care anywhere between 7 to 10 years and effortlessly go beyond 100,000 miles, thus if you keep your car long enough, it will definitely pay for itself and you will certainly save money.

b. If you’re gonna lease, make sure you get the best price anyways. Often this is an issue that people think doesn’t matter if you lease, however, the ultimate cost will be based upon the agreed sales price, which in a lease is called ‘the capitalized cost’, yet it’s almost the same thing as the actual sale price of your vehicle. Don’t be fooled by the ‘legal mumbo-jumbo’ or sales language used during your shopping visit, you negotiate the “capitalized cost” the very same way you would do if you were buying it. Your monthly lease payment will be based upon the final sale figure, after all factors have been tallied, like a trade-in vehicle, down payment or rebates. In fact, you may want to concentrate on getting your best price first, then decide whether you’re gonna lease or buy.

c. And last but not least, make sure you look for the best interest rate on your financing, which if at all possible, try to arrange it before you begin your vehicle buying or leasing process thus eliminating one more possible source of confusion during your closing procedure and can give you a clearer head for your deal. It’s almost inevitable that when too many things are happening during your closing or delivery of your vehicle, and while the excitement is flying high, much too often it gives room or the opportunity for you to get cheated upon with different APRs, or balloon payments, or escalating rates after the first year of your contract, etc., etc. Be careful and don’t fall into this very usual type of ambush due to excitement, happiness and the impatience of getting everything signed-up quickly so you can leave and drive your new car.