Leasing a Car Vs Buying a Car

by Neil Kokemuller
<p>Leasing a car means paying a monthly fee for the right to use a car. Buying a car means you own it, though purchases are typically financed through a lender. Each approach to paying for vehicle access has relative benefits.</p>

Why Lease a Car

<p>When you lease a car, you <a href="http://www.edmunds.com/car-buying/compare-the-costs-buying-vs-leasing-vs-buying-a-used-car.html">typically only make monthly payments</a> for as long as you drive the vehicle. You don't have the registration, taxes and upfront purchase fees that you would with a purchase, according to Edmunds.com. When you return a leased car and settle any remaining charges, <a href="http://www.consumerreports.org/cro/2012/12/buying-vs-leasing-basics/index.htm">you walk away free and clear</a>, reports Consumer Reports. Leasing protects against the lost value of a purchased vehicle after depreciation. You also have the ability to work out a purchase agreement at the end of the lease in many cases. Edmunds.com notes that people who lease don't have to pay the costs for regular maintenance.</p>
<p>Many leasing companies allow customers to convert their lease into a purchase at the end of the term. As opposed to an outright purchase, you get a chance to drive the car for a few years before making a more extensive investment. Your lease payments apply to the purchase price if you opt to go that route.</p>

Why Buy a Car

<p>Leasing doesn't offer the psychological benefit of owning the car, which is important to some people. To escape your lease, you may also have to pay an early-termination fee. Owners can sell at any time. Leases also have mileage limits, whereas a car owner can drive the vehicle as much as he desires. Car owners can upgrade a vehicle or make changes with greater flexibility than people who lease.</p> <p>You have greater insurance flexibility and potential savings when buying a car, especially a used one. Leasing companies normally <a href="http://www.autobytel.com/car-buying-tips/insurance-information/how-to-get-car-lease-insurance-100477/">require that you carry full-coverage auto insurance</a> to protect their property, according to Autobytel. In contrast, you only need to meet your state's legal requirements for insurance on a purchased vehicle, which is usually just liability coverage. Typical leasing companies require that you carry gap insurance as well that protects against being underwater on a totaled car. This coverage costs around $30 per year, at the time of publication, but is much <a href="http://www.bankrate.com/finance/insurance/car-gap-insurance-is-it-right-for-you.aspx">more expensive through a dealer</a>, reports Bankrate. You don't usually need gap insurance with a used car, but you may opt to purchase it for a new vehicle that you buy.</p>

Total Cost Comparison

<p>The costs of leasing versus buying vary a bit. <a href="http://www.edmunds.com/car-buying/compare-the-costs-buying-vs-leasing-vs-buying-a-used-car.html">Edmunds.com compared total costs</a> for leasing relative to buying a new or used Honda Accord in California. Over a six-year period, leasing was several thousand dollars less than buying a new car, but several thousand dollars more than buying a used car. When you factor in the equity value of selling a car you own at the end of your ownership, leasing does end up having a significantly higher net cost than buying either a new or used vehicle.</p>

About the Author

Neil Kokemuller has been an active business, finance and education writer and content media website developer since 2007. He has been a college marketing professor since 2004. Kokemuller has additional professional experience in marketing, retail and small business. He holds a Master of Business Administration from Iowa State University.

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