Car buying vs. leasing: how to make the right decision

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Car buying and car leasing - it's a decision that involves both lifestyle preferences and economic issues....

Car buying and car leasing - it's a decision that involves both lifestyle preferences and economic issues. If you prefer to drive a late-model car and exchange it for the latest new model every few years, then leasing is your best choice. If you don't mind driving the same car for 5 or 10 years, car buying is your best choice.

The downturn in the economy pushed auto sales to their worst level in 16 years. To compensate, dealers began offering more lease deals, which eventually led to about one in four new cars leaving the showroom under a lease rather than a purchase.

Leasing a car usually gives you a lower monthly payment than car buying. Dealers encourage leasing by advertising attractive monthly payments that fit nicely into many household budgets. However, to fully understand your overall costs for leasing a car, consider these factors:

  • The initial "drive-off cost" usually includes a down payment, a security deposit, the first monthly payment and licensing fees. Dealers will sometimes agree to reduce this lump sum, although doing so will raise your monthly payment.

  • Note that the advertised monthly payment does not include taxes, which can easily add $10 per month to a typical monthly payment.

  • Leases contain mileage overage penalty charges. The lease agreement specifies the number of months (usually 24 to 36) and number of miles the car can be driven per year (usually 12,000, although some leases limit mileage to 10,000 or less). Any miles driven over the specified amount are charged, usually at 15 to 20 cents per mile.

  • A "disposition fee" is usually charged when the car is returned.

  • Guaranteed auto protection (GAP) insurance pays the difference between the depreciated value of the car and the amount you still owe the leasing company should the car be totaled or stolen. GAP is usually included in lease agreements.

  • The leasing company sometimes requires you to carry low-deductible auto insurance. A policy with $500 deductible collision coverage is substantially more expensive than a one with, say, a $2,000 deductible.

At the end of a "closed-end lease" you simply turn the car and its keys over to the dealer. The dealer will inspect the vehicle and charge you for any damage that has not been properly repaired. You'll pay a "disposition fee," which is essentially a matter of paying the dealer to find a buyer for the now-used car.

Edmunds.com, the auto experts, did an in-depth analysis on the economics of leasing versus car buying. Their conclusion: Leasing, in spite of the lower monthly payments, is substantially more costly than buying a new car. If driving a new car is important to you and you're willing to pay the higher costs, leasing is a great way to go. Otherwise, pay a visit to your favorite Atlanta dealer and see what you can buy--either new or used--and put the difference into your savings account, college fund or vacation fund.

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