Accounting Services - Real Estate Estate Planning

Buying vs Leasing

Written by: Evelyn Suvajdzic

Clients often ask me if they should lease or buy a vehicle.   Invariably the question is brought on by a lease dealer stating that, for a little money down and low monthly payments, you can drive a brand new vehicle for a couple of years.  Once the lease term is up you have the option to buy out the lease or turn in the vehicle and lease a new one.

Leasing is more profitable to dealerships therefore; many sales people mislead consumers into believing that a lease is their best option. 

The question to lease or buy depends on your personal priorities.  From a financial planning aspect the best route is to pay cash for all items.  The idea in creating financial wealth is to have as little debt as possible and, if you do have debt, for as short a term as possible. 

A loan is generally a better option than leasing if you intend to keep the vehicle for more than three years.  If you plan to trade frequently or are looking at a loaded vehicle, leasing may make more sense. 

Here are some things to consider when purchasing:

  •        Don’t be in a rush to purchase something.  You should always allow yourself at least a month to shop.
  •        Put as much cash down as possible and get your loan pre-approved so you know how much you can spend before you go looking.
  •        Gather as much information as you can about which type of vehicle suits your needs as well as the operating expense and maintenance costs involved.
  •        You’ll get a better deal in March or April after new models are out.
  •        Check out the used car deals after someone else’s lease is over.

Here are some things to consider when leasing:

  •        Look for the lowest total cash outlay (down payment plus monthly payments).
  •        Try to find a lease with a low interest rate; it could save hundreds of dollars.
  •        Leave the lowest possible down payment, this is especially useful if you do not have funds available for the down payment required for purchasing and financing by loan.
  •        Obsolete assets can be a drain on your financial picture.  If your assets have a useful life of three years or less, leasing may be a more suitable option.