Fall marks the onset of the holiday season for many of us. But for car aficionados, ‘tis an entirely different type of season—it’s when new models hit dealerships.
Around this time of year, I typically get a number of questions from clients around buying vs. leasing a car. Which is cheaper in the long-run? Which is the better lifestyle fit?
Like many financial decisions, the better option is somewhat personal and circumstantial. That being said, here are four key questions to ask yourself.
1) Whip around in the latest model?
If you’re the type that wants a new car every two to three years, it may make more sense for you to lease.
2) Rack up a lot of miles?
Leasing tends to make more financial sense if you put under 10,000 – 12,000 miles on your car each year. Any more than that, and purchasing is likely your better option.
3) Avoid maintenance issues?
Newer cars bring the added perk of less maintenance. If you’re looking to drive something new and snazzy with minimal upkeep, leasing may be for you. However, it’s important to check with your specific car company to ensure service is included.
4) Have financing options?
You have fewer options when leasing a car than when purchasing. Even if you know you don’t want to buy outright in cash, taking out a loan on a new car may be more cost-effective for you than leasing, depending on the financing options for which you qualify.
Once you determine how you feel about these factors, ask your financial advisor to run a more technical lease vs. purchase analysis for you. For him or her to do so, you’ll need to provide the following information:
Purchase Option
Lease Option
Note: You will likely hear something like $479/month, but that does not include your portion of the sales tax. Because you will pay the sales tax on a pro-rata basis over the life of the lease, be sure to ask for the complete lease payment (e.g., the complete lease payment for $479 would actually be $501).
I ran a similar analysis for my husband in 2014, prior to him deciding to lease a new car. He thought it would be fun to drive a pickup truck for a few years, but knew he would likely want to buy after that, so leasing made the most sense for him.
Once you’ve determined your priorities and run the numbers, you’ll have a good pulse check on whether leasing or buying is your better option. Then comes the fun part—ringing in the season with a visit to the dealership.