Car shopping: Should you buy or should you lease?

How many years has this debate been ongoing? Is it better to lease or to buy a car? If you ask your friends and family, you'll probably get a variety of answers, with people being adamant about their personal opinions. The truth is that over the long-term, buying is a much more cost effective option. The key is in buying and keeping the car for a long time, something on the order of ten years.

There are only about two times when leasing a car makes any sense. The first is if you're the kind of person who wants to have a new car every few years and have so much money that it really doesn't matter. This will be expensive, so it's not a fiscally sound choice. But if you know you're going to be replacing your car in a few years, leasing takes the risk out of the transaction. You know exactly what you're paying over the life of the lease, and you have no uncertainty with the value of the vehicle when you're ready to get rid of it. No haggling over trade-in values or trying to sell the car on your own.

The second time a lease makes sense is if you want a more expensive car than you can really afford. You will get a lower monthly payment on a lease than you would on a 3 or 5 year auto loan for a purchase, so you can get more car for your money. Obviously, this is stupid. If you can't afford the car, you shouldn't lease or buy it.Buying a car and holding it for the long-term makes all kinds of financial sense. If you can pay cash for a reasonable and reliable car, do it. Some financial experts say you should never take out a loan for a car, but if you have to do it, you at least will get the satisfaction of knowing that once the loan is paid off you own the car outright.

Once your car is paid in full, the only costs other than operating the vehicle are maintenance costs. Yes, those can add up if you have an unreliable car or need a major repair. But this is no reason to shy away from buying in favor of leasing. Even if you estimate repairs at $1,500 a year (which seems a little high), you're still way better off buying.

This blogger did a nice analysis of the costs, and proves that it's clearly better to own and a goal of keeping a car for ten years is a great idea. You can do your own analysis of your car situation with this lease or buy calculator offered by Bloomberg.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.

Learn about investing from the comfort of your own home.

Portfolio Basics

Take the first steps to building your portfolio.

View Course »

Investment Strategies

Learn the strategies you need to build a winning portfolio

View Course »

Add a Comment

*0 / 3000 Character Maximum