Car Buying Advice

Buying a vehicle is a fairly straightforward process. You borrow money from a lending institution, pay the dealership for the car, and then make monthly payments on the loan until it's paid off. As you pay off the loan, you gain equity in the vehicle until it's eventually all yours. You can keep the vehicle as long as you like and you can do whatever you want to it, from giving it a custom paint job to entering it in a demolition derby. The only penalty for modification or abuse, perhaps, is a lower resale value when you're done with it.

On the surface, leasing appears even simpler. You pay the leasing company a monthly payment that's lower than when buying. Then, after enjoying the most trouble-free two or three years of the vehicle's life, you simply bring it back to the dealership and lease another new one, or walk away. No muss, no fuss, right? Gone are your worries about haggling over the trade-in value or how to sell your old car. With a lease, that new-car smell need never leave your nostrils. Moreover:

• There's often no down payment required when leasing, or only a low one.
  
  
• You can drive a higher-priced, better-equipped vehicle than you might otherwise be able to afford to buy.
  
  
• You're always driving a late-model vehicle that's usually covered by the manufacturer's warranty.

These benefits are very inviting for many people. Still, there are a number of compromises and disadvantages to leasing, which means that it's not right for everyone.

• Once you're in the leasing habit, monthly payments go on forever.
  
  
• You have a limited number of miles in your contract and will have to pay extra if you go over.
  
  
• You must maintain the vehicle in good condition. If you don't, you'll have to pay penalties for excess wear and tear when you turn it in.
  
  
• If you need to get out of a lease before it expires, you may be stuck with thousands of dollars in early-termination fees and penalties--all due at once.
  
  
• Leasing is rarely a better financial arrangement than buying. The financial advantage of buying increases the longer you keep the vehicle after the loan is paid off.
  
  
• At the end of the lease, you have no equity in the vehicle to put toward a new car.
  
  
• You can't customize your vehicle in any permanent way.

In addition, arranging a lease can be a confusing, complicated process that can easily leave you paying more than you should.

This is not to say that leasing can't be a satisfying and cost-effective way to acquire a new vehicle. But it's a mistake to think that leasing is always easier or less expensive than buying.


Who should lease?

A lease comes with lots of limitations on how you can use your new vehicle. Do you drive a lot? Do you load your trunk or roof rack with paint-gouging flea-market treasures? Is your car a magnet for parking-lot dents and dings? Are your kids apt to turn its interior into a finger-painting studio? If so, you face a potentially costly problem trying to live within the strictures of a lease. First, you'll have to pay for what the leasing company determines to be excessive wear and tear to the vehicle when you return it at lease-end. Second, you'll have to ante up 10 cents to as much as 25 cents for every mile you drive beyond what your lease allows. Driving 5,000 miles over your limit can cost you $500 to $1,250.

Leasing novices are particularly at risk of running up these costs. Nearly one-third of the first-time lessees in a Consumer Reports survey were hit with excess mileage or wear-and-tear charges.

To determine whether the leasing lifestyle is for you, look ahead to the full term of a lease. How likely are you to change jobs or move to a new home that requires you to rely on your leased vehicle for a long daily commute? Will one of your children begin driving soon? If so, leasing may not be the right choice.

Drivers who are hard on their vehicles aren't the only poor candidates for leasing. Driving too little can also saddle you with unnecessary costs. In the same Consumer Reports survey mentioned above, 20 percent of the drivers older than 55 returned their leased vehicles to the dealer having driven at least 10,000 fewer miles than their lease allowed. Since they got no credit for that unused value, they gave the leasing company what amounted to a windfall when it resold the vehicle. Valuing those unused miles at 10 cents apiece, that subsidy to the dealer can add up to $1,000 or more.

Leasing generally makes sense only if:

• You don't exceed the annual mileage allowance--typically 12,000 to 15,000 miles, but sometimes as little as 10,000 miles a year.
  
  
• You keep the vehicle in very good shape. Excess wear and tear charges can be steep.
  
  
• You plan to get a new vehicle every two or three years. If you keep it much longer than that, you're better off buying it from the start.

If you're undecided, refer to "Buying vs. leasing basics" to assess the advantages and disadvantages. You can also use the Documenting the deal worksheet to crunch the numbers for a particular vehicle both ways to see which makes the most sense. If you're attracted to the lower monthly payments of a lease but are concerned about the restrictions, you could consider other alternatives, such as buying a car with a longer loan term or buying a used car.