Leasing Vs Buying - How to decide ?

In the US about 20% of the new cars are leased. Leasing is the process where you can 'rent' a new car for a typical 3 year period with an agreed upon usage like 30,000 Miles or 36,000 Miles. As an incentive, most car manufacturers throw in promotions and FREE maintenance during the lease period. For some people, the "FREE maintenance" factor itself can be a big motivator even though leasing ends up being expensive. Unlike what the leasing department wants you to believe, there is no situation in which leasing a car is cheaper than buying one. My recommendation is regardless of what your financial situation is, you should always buy your cars with "CASH". It is hands down the cheapest and best way to own a car. That being said, this article will compare leasing to financing. Not everyone has $20k sitting around. However with auto loan interest rates, at what they are now, you would be better investing that 20k if you had it and taking out a 48 month loan at a 3.5% rate.

Whereas the total cost of ownership in buying is the lowest, both leasing and buying have advantages and disadvantages. Everything comes down to your budget, lifestyle and driving needs. The obvious difference is that with a lease, you get a new car every few years and don't have to deal with hefty repair bills or the hassle of selling the car later. Just hand the keys over to the dealer and get a new lease. In contrast when you buy a car, each payment you make on a financed car builds equity; once you pay off the loan, you are the owner and you can sell it and get part of your money back.

Here are some of the factors involved:-

1.) Your monthly payments - Leasing a car often has a lower monthly payment compared to financing a car with the same loan terms, since with a lease you're paying for the depreciation of the car during those years rather than the whole vehicle cost. Typically leasing costs anywhere between 40 to 50% lower than you were to pay on 5 Year Term purchase loan. So leasing can be beneficial if you don’t have that much to spend each month.

2.) Down Payment: - Leasing Usually costs lower down payment and taxes, so leasing can decrease your initial expenses.

3.) Miles Driven: - If you drive a lot —over 10,000 to 15,000 miles, depending on the lease agreement—you'll probably have to pay extra for each mile. Many leasing companies charge 10 to 20 cents a mile for additional miles, so that is a factor to figure in.

4.) Car's Upkeep - When you return the car after the lease period, it is expected to be in the same new condition inside and outside. That includes interior - seats etc, exterior and tires as well. Scratches, dents and dings either by minor accident or parking lot door incidents can matter. Interior/seats may be damaged by kids, pets etc. Tires have to be replaced by new ones. All these can add significantly to the lease return charges.

5.) Lifestyle - Do you prefer to keep the car long or would you prefer a new car every 3 years. Is the car a status symbol for you? I personally know of folks who have purcahsed new cars and kept for more than 15 years and crossing the 200K miles range. In my opinion buying a car is clearly beneficial if you intend to keep for more than 5 years. How ever if you feel the need to drive newer cars every 3 years leasing would be the way to go.

6.) Business or Personal Use - Interest paid on an auto loan is deductible to the extent the auto is used for business. Only the personal use portion is non-deductible. There are also additional depreciation and deductions available for car purchases that should be considered when determining whether to lease or purchase a vehicle. If you are self-employed, another consideration is whether you individually or your business should purchase the vehicle. If your business purchases the vehicle then a business credit card can be used for all auto expenses; however, you may need to add any personal use component to the employee's W-2 in order for the business to deduct 100% of the expenses. Do remember to keep good records of mileage to substantiate your business versus personal use. 

The truth is buying a car is almost always cheaper in the long run, according to most calculations. The longer you own the car, usually the more you save by buying. If you just want a quick calculation on what makes the most financial sense, use a leasing calculator. Bankrate's auto calculator is a useful tool. It will ask you things like how well you maintain your cars and what your credit rating is like.  There's a lot that more goes into the decision. In the end, your decision will come down to the unique situation you are in. You should be the best judge on whether to lease or buy. Good luck with your decision!