Does leasing a car make sense financially?

Getting a new car is exciting. That new car smell, the increased comfort, the dazzling features…it can be easy to get sucked into the experience. It's also expensive. That's why many people decide to lease, rather than buy, new cars. But does a lease make sense financially? It depends on your situation. Let's examine the advantages and disadvantages of leasing a car.

Leasing Advantages

For those that "buy" a car but trade it in before it's paid off, you will hardly ever get a trade-in value that will pay off what you owe. If you're the type that likes a new car every few years, leasing may be more beneficial to you. You'll always have a car payment, but leasing allows you to upgrade more frequently. You'll drive vehicles with less wear and tear because they're newer. Payments are relatively low compared to buying a car, but there are additional costs when you trade in the leased vehicles that need to be considered. Repairs are usually covered under the vehicle warranty because the vehicle is newer, but you'll need to pay careful attention to your lease contract to determine who is responsible for maintenance and repairs for the duration of the lease.

Leasing Disadvantages

Leasing vehicles means that you'll always have a car payment. Excessive wear and tear or going over the allotted mileage can be very costly when you turn in your leased car. Most leases stipulate that the lease only covers the first 12,000 miles traveled each year. Fees for extra miles run anywhere from $0.10 - $0.30. Going a few thousand miles over, this is relatively easy to do, could end up costing you a few hundred to more than a thousand dollars. The alternative to paying the extra mileage fee is to purchase the car yourself, but dealers will often inflate the price due to the "discount" you received during the lease period.

Whether or not a lease is a better option for you will depend on your lifestyle and how conservative your driving habits are. Do you have kids? It's probably not a good option; there'll be spills, stains and who knows what by the end of your three-year lease. Can you commit to driving only the number of miles your lease covers? Are you responsible enough to take the car in regularly for maintenance? All of these factors should be considered before diving into a lease.

In the next article, we'll examine the advantages and disadvantages of buying a car.

Photo courtesy of Ross Berteig via Flickr.