Thursday, January 28, 2010

Q&A: Leasing vs. Buying Cars

Q: Car lease vs own, what's your advice?

A: Personally, I'd buy a used car, preferably with cash but definitely with a significant downpayment.

I understand why leases are attractive: the choice of switching to a different vehicle every few years or to hang on to the one you have seems like a good one. But that's the thing: switching cars every couple years means locking yourself into a perpetual car payment, unless you have enough cash to pay the entire lease up front. Of course in that case, it's easy to argue that you could also afford to buy a used car outright.

If you decide to keep the car at the end of the lease, you're voiding another one of the advantages of leasing, which is that you don't take the hit on the car's depreciation. If you give the car back, the dealership takes that hit and makes up for it by selling the car to someone else. But if you keep it, you own the depreciated asset and continue paying on it until you've bought the car fully.

Again, this is not to say that there aren't some circumstances where leases make sense; this is just my opinion on why buying a decent, used car with cash if you can afford it, makes more sense.

photo: Susie B./freedigitalphotos

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