Lease or Buy? Which is Best for You

Choosing to buy or a lease a new vehicle is a difficult decision.Especially since a lease is difficult to understand. The correct choice depends on your particular situation. There are pro's and con's to both.

First, let's get the basics of a lease.The first thing to understand in a lease is you are not buying the car. Essentially you're renting it.They allot you certain number of miles per year. If you go over that there's a fee. You're payment is only to cover the depreciation of the vehicle and there isn't an interest rate, in a lease it's called a money factor. It is still calculated on your credit rating. Those are the basics of leasing, so why lease instead of buying?

The best part of leasing is you get to drive a new car. A lease is best when applied to a new car. Leases are anywhere from 12 to 60 months. Since you only pay on the depreciation the payment is usually lower and at the time of turn in you are not upside down. Once the lease is up you're free to purchase another vehicle without having to worry about negative equity.It is best to do a lease for the a term equal to or less than the factory warranty of the vehicle. That way you never have to worry about repairs or such.
A lease is also good if you're trying to trade out of a vehicle with negative equity. If a car has a good residual value it can handle the negative equity brought into the deal without your payments skyrocketing. I recently trade out of a vehicle I was approximately $4,000 upside down and paying $471 a month and leased a brand new vehicle with no money down and my lease payments are $353!
The two hardest parts of leasing though are first, money down is almost always a requirement depending on the manufacturer. First, paying taxes upfront is almost always required plus your first payment and some leases also have an acquisition fee. then depending on the lease deal, a certain amount of money down may be required in order to meet the depreciation requirements. Large sums of down payment like that can be difficult, but as all parts of an auto purchase, that is negotiable.

Second, the limit in miles scares most buyers. The mileage range can be anywhere from 10,000 to 15,000 a year. 15,000 is usually plenty for most people. But if you feel you may go over that amount you can pre-pay for those miles in your lease, your payment just goes up. At lease turn in if you didn't pre-pay for your miles you will have to pay at that time. Usually at a rate .15 cents a mile. You also have to take care of your vehicle. Remember, a lease attempts to predict the value of a vehicle assuming it is in good condition. If at lease turn in your vehicle is missing the front end, you will have to pay for whatever the dealer feels that will cost or depreciate the value. You can also just purchase your vehicle at that time if you love it enough.
If you find yourself trading out of your vehicles every 2 to 3 years, a lease is for you. If you want a low payment on a top of the line vehicle, a lease is for you.