To lease or not to lease?

Buying a car can be a big investment, but it may be the best option depending on your lifestyle. Here are some questions to ask yourself before committing to purchasing a car.

Rebecca Cook/Reuters/File
A customer walks through a Chevrolet showroom in Redford, Michigan.

As any TV watcher can tell you, auto companies are strongly pushing leasing these days. “Low, low” payments of $199 a month flash enticingly across the screen. But a reasonable question forms in your mind: Is leasing right for me?

If you examine you car ownership history, you will begin to see patterns that can help you decide whether to lease or buy.

So ask yourself these questions, and let your answers guide you in making the right decision.

1. How far do you drive? The standard lease contract allows for 12,000 miles a year or 36,000 miles for a typical three-year lease. If you drive farther than your allowed miles, you will have to pay 20 cents for each additional mile at the end of the lease. That could be quite a shock! Buying extra miles upfront is an option, but in most cases, high-mileage drivers are better off purchasing a car rather than leasing.

2. Do you use your car for business? Are you a real estate agent or a CEO or just someone who wants to impress clients by taking them to lunch in a luxury automobile? You probably can write off your lease payments as a tax deduction. But check with your accountant before you head to the dealership.

3. Are you a neat freak or sloppy? Most lease contracts are for three years, which gives drivers plenty of time to spill soda on the seats, ding the bumpers and scuff the door panels. Hey, stuff happens. Lease contracts allow for “average wear and tear,” but when you return the vehicle, the word “average” becomes debatable. This could prove costly for some people.

4. Do you like chrome-tipped exhaust pipes? Some drivers like to customize autos with hot rims, running boards or spoilers. If you lease, you’ll have to take all that modified stuff off and return the car with the same look it had when you got it. So if you go for “mods,” leasing is probably not for you.

5. Are you short on cash but strong on credit? A commonly cited advantage of leasing is that it maximizes cash flow. Another way of thinking of it is a “pay as you go” form of car ownership. So, rather than dumping most of your savings into a large down payment — and making high monthly payments — you can lease instead. If you have strong credit, you can start a lease with $0 down and still have lower payments than if you bought the car. Just keep in mind that three years later, you’ll have to return it (or pay the buyout amount).

6. Are new cars your top priority? Most of us have limited amounts of money, so we spend our hard-earned cash on things we value. That means we have to make choices. For some people, spending money to always drive newer cars is important. Maybe they like the prestige they think it brings, or they like having the latest design and cutting-edge technology. Such people will prefer leasing.

7. Do you like to save money? Leasing is inexpensive in the short term (low down payment, low monthly payment), but over the years, the costs add up. Why? Because the person who leases is always driving a newer car and paying the steep depreciation that clobbers a car’s value in the first year. Compare that to the person who buys a vehicle. After five years of making higher payments, the buyer can continue to drive the car with no payments. This can be especially important if the economy tanks or you face financial hardship.

If you still can’t make up your mind on lease vs. buy after answering these questions, it’s probably safer to default to buying a car. While the upfront costs are higher, a purchase contract provides more freedom when your life circumstances change.

Philip Reed is a staff writer at NerdWallet, a personal finance website.

This article first appeared in NerdWallet.

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