How To Decide Whether to Buy or Lease Your Next Vehicle

Leasing Knowledge You Need

We had a listener Car Pro Show who was skittish about leasing, she had never done it before. We get this call at least weekly. Here are some things to think about when considering whether to buy or lease your next vehicle.

1. Consider How Much You Drive

When I get the question of lease versus buy, my first question back is always how many miles per year do you drive? Some people, especially third party leasing companies, will disagree with me on this; however, I maintain that if you drive more than 17,500 miles per year, you have no business leasing. There are some true advantages to leasing, but this is only a benefit to you if you are not a high-mileage driver.

2. Understand Leasing Advantages

The reason for leasing in my view is that if you stay within the allotted mileage, you cannot owe more on your car than its value at the end of the lease. The advantage here is that you can simply walk away and not owe any more. If you have equity, you get to keep that for your next lease or purchase.

The reason for this is that you are highly unlikely to need to buy tires. Plus, you wonít be out a ton of money on maintenance costs like timing belts, and other mechanical issues that occur further down the road as a car ages. Additionally, you will always have the latest technology options and safety features on your car. Some automakers provide free maintenance for the first two years, others cover maintenance for the full term of the lease.

3. Understand the Leasing Mindset

If you are going to get on a cycle of back-to-back leases, it is critically important that you have the mindset that you will never own a car outright. When you are leasing, you are paying a lower than usual monthly payment, and often this lower payment allows you to lease a higher-end model. These are all issues to consider when pondering whether to lease or buy.

If you are a person who likes to be without a car payment and drive a car until the wheels fall off, then, bottom line leasing is not for you. I would never go into a lease planning to buy the car at the end of the lease. This defeats the attributes of leasing in the first place.

4. What to Know about Third Party Lease Companies

The reason for this is, the third party lease companies purchase from local dealerships, mark them up, and then generally stretch a lease out to four, five, or six years. That is just too long to lease in the majority of cases. Why would you add that extra profit margin to pay a third party lease company when it is not necessary? Third party lease companies cannot buy directly from an automaker, with the exception of Tesla.

5. Why Leasing From The Manufacturer Means Lower Monthly Payments

It is also important to understand that there are low lease interest factors offered by the factory to help keep your payments low. This is very prevalent with the imports and luxury brands, especially in December. A third party lease company does not have access to those rates, therefore, making the case again that it is better to lease directly from the dealership.

I hear from consumers on a regular basis who have been burned by leasing many years ago. Today, the reason the manufacturers love leasing is because it puts you back into the market sooner. This should result in the manufacturer selling more cars. For this reason, some manufacturers make leasing such an attractive proposition that it is hard to resist.

Final Thoughts

Leasing has made quite a comeback since 2011, and without a doubt, there will be a lot of lease activity this month with the specials that are out there. All automakers have gotten aggressive in leasing again, and we are seeing the domestics very aggressive in the leasing game. I canít think of a single brand that isnít offering some sort of lease specials currently.

If leasing is right for you, and you are absolutely sure of the mileage you drive annually, then leasing is a great way to get a car. After all, you are only paying for the best years of the carís life, the first few years.

Related Reading:

Easy to Follow Guide to Your End of Lease Options

Photo Copyright: ESB Professional/Shutterstock
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The first part of this sentence seems to contradict the second part:
Understand Leasing Advantages
The reason for leasing in my view is that if you stay within the allotted mileage, you cannot owe more on your car than its value at the end of the lease. The advantage here is that you can simply walk away and not owe any more.
How would you owe "more on your car than its value at the end of the lease".
Maybe you are considering an end of lease purchase?
But that seems to start an alternate thread.
Amy P.
Gordon, If your car is worth less than the residual value, you owe more than the payoff. That's when you walk away. IF the opposite is true, you have equity.

Hope this helps!

Jerry Reynolds
Robert Baker
2nd try hope this isn't repeat. U seem to ignore the fact that the real deals go to "well qualified" former & present emloyees and repeat leasees. Halos did not mention money down or cost per luxo vehicle. And what about insurance??? Got any suggestions there. As usual it's internet facts.
Amy P.
Robert, you are going to have to clarify this, it makes no sense to me, sorry.

Jerry Reynolds