AOL's Welcome Screen recently ran a story that pondered that age old question: Lease or Buy?

AOL Autos contributor Eric Peters took a balanced look at the pros and cons of each approach. But the real reason that leasing a car is such a bad idea is this: Driving a brand new car means that you are either very wealthy or very stupid.

A good rule to remember when it comes to car shopping is that you should buy your first new car when your net worth is over $1 million -- a sum that leaves you well-prepared for retirement and rainy days. Until then, stick with used cars.

When you lease a car, you are basically agreeing to rent it for two to three years. During the first three years, new cars lose most of their value. What that means is that by leasing the car and then returning, you are essentially compensating the lessor for taking back a product that will be worth very little when you return it.

Sure, you can get out a spreadsheet and use all kinds of online "leasing vs. buying" calculators but all of that kind of misses the point.

It's a little bit like debating between skim milk and soy milk after you just downed 15 Big Mac's. Unless you are really, really rich, you shouldn't be driving a new car, regardless of whether you lease it or own it. If you do decide to drive a new car, you are making a dumb decision and you shouldn't try to rationalize it by comparing the costs of leasing vs. the costs owning.

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There are many things wrong with this article. 1) buying new would be the most expensive thing to do and depending on the situation, leasing could very much be cheaper such as if a transmission went out on your used vehicle that you over paid for and now not only have to worry about depreciation but parts and labor to fix the vehicle as well. 2) When talking business, the net cost of leasing is cheaper than acquiring due to the operational, tax, and market incentives. This is why leasing is the most popular method of external financing of corporate assets in America. Of course leasing appears to cost more than acquiring but that is because the lessor shoulders at least some of the financial and risk burdens that a purchaser would normally have to assume. 3) Leases are considered to be off balance sheet financing in which capitalizing the assets and liabilities are not required.

July 30 2012 at 6:30 PM Report abuse rate up rate down Reply