Should You Buy or Lease?

Lease formulaSo you’ve got your eye on a shiny new Putt Putt Intimidator XE. It’s got all the features that you want; navigation, shiatsu massage seats, power-folding running boards, a bazillion horsepower. But there’s one problem; it cost an arm, a leg, a kidney, and you’ll have to sell one of your children just to afford the insurance.

Then one night, you see a TV ad proclaiming the new Putt Putt Intimidator to be just $299 per month, “for well qualified customers”. But how? The thing starts at $30k, which would put your payments on the north side of $700 per month. Oh crap, that must be a lease! But is that really such a bad thing?

Car Lease Explained

Leasing a car is just like renting one at the airport. You pay to use it for a set amount of time, then you return it, and fly back to Cleveland. Sure the details are slightly different, but that’s the gist of a car lease. Those details however, could make a lease look pretty good.

1. You don’t actually own the car – While this may seem disconcerting to some, it can actually save you money in the long run. During the lease, you’re not liable for repairs, and in some cases, maintenance is included too. Other common leasing terms include;

  • Yearly mileage restrictions – The leasing company has to sell the car once your lease is over, and a bagillion miles would make your Putt Putt Intimidator virtually worthless.
  • No modifications allowed – No 40-inch wheels. No bumble bee exhaust. No loud stereo equipment, or anything else that might void the car’s warranty.

Good news – At the end of the lease, you can turn in your Intimidator for the latest model, or you can buy the thing outright.

2. You’re not financing the price of the vehicle, you’re financing the depreciation – The reason that your payments are so low is because you’re financing a smaller number. For example; If your $30,000 Putt Putt Intimidator XE is expected to be worth $19,500 at the end of your 24 month lease, your payments will be based on the $10,500 in depreciation, plus interest and leasing fees.

Buying the Vehicle

If you actually purchase the Putt Putt Intimidator, you’re financing the entire $30k plus interest and finance charges. You’ll be free to install all of the chromed out chachka, and flame-throwing exhaust kits that you want. And you can drive as many miles as you want too. However, you’ll be liable for any out-of-warranty repairs. Plus, regular maintenance will be on your dime too.

Once you’ve paid the vehicle off, it’s yours to keep. By contrast, when your lease expires, you have to turn the vehicle in and get a new model. Or, you can buy the vehicle from the leasing company. In which case, your payments will continue.

If you’re the type of person that likes to drive a new vehicle every few years. And you value convenience over ownership, then leasing a car would make the most sense for you. However, if you’re the type of person that likes to modify your car, then drive it till it dies. Purchasing a vehicle would be your best bet.

Related: Buying vs Leasing a Car – A detailed breakdown

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