Leasing and buying a car both have their advantages and disadvantages. If you are in the market for a car, you should first consider how long you want to drive the car, your overall driving habits -- such as the distance you commute to work -- and your financial situation, among other things.
Overall Cost
Carefully compare the cost of leasing a car to buying a car with financing. For example, many car companies advertise a low monthly payment for leases, but require a large sum of money upfront for a down payment, not including taxes and bank fees. Compare the cost of the lease for its entire term to the cost of financing the same car. Some financing companies offer rebates or automatic cash discounts. Leasing is often based on the new car's sticker price. Without further negotiations or rebates, you may end up spending the same amount of money or more if you decide to purchase the car at the end of the contract.
Mileage
When leasing, you pay for the vehicle's expected depreciation. The depreciation amount is based on the term and mileage you choose for the lease. If you go over your lease's mileage allowance, expect to pay a penalty fee. Depending on the leasing bank and the mileage you choose, you can pay as much as 20 cents per mile for each mile that exceeds your allowance. If you pursue financing, you can drive your vehicle as much as you'd like. Mileage restrictions can prove problematic if your driving situation changes over the contract term.
Down Payments
A down payment has a bigger impact on a lease's monthly payment amount. For each $1,000 you provide for a down payment toward a lease, you can expect to pay $30 less per month. For a finance purchase, the difference is about $20 per month. You may be tempted to offer a larger down payment for a lease, but it is not worthwhile. In the event that you total your vehicle or it is stolen, your insurance company pays your lender for the car's market value. If leasing, you won't receive any of your down payment or vehicle's equity back. If financing, you receive the remainder of the vehicle's value after the loan is satisfied.
Lease-End Fees
In addition to over mileage and down payment fees, you may still have to pay at the end of your contract. Most leasing banks offer some form of wear-and-tear allowance for the lease term, which allows for light seat wear, light body scratches or some tire wear. The leasing bank may charge you if the vehicle is damaged or if the bank determines that the wear-and-tear has exceeded its allowance, requiring you to pay for decrease in vehicle value. If financing, you don't have to worry about the amount of wear your car sustains. Expect to fully repair and maintain your leased vehicle before you turn it in. Otherwise, the leasing bank will send a bill.
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