Should I Purchase or Lease a Car?

A vehicle lease often has a cheaper monthly payment than a car loan payment, however, the lease contract may prove too restrictive for some buyers. As a lessee, you must abide by wear-and-tear limits and a mileage allowance that you choose at the beginning of the lease. Consider your driving habits and vehicle needs to determine whether a lease or purchase is the right choice for you.

Ownership

If you finance your vehicle, you will own it once you pay off your loan. If you lease your vehicle, typically you'll return it to the dealer at the end of the lease period, never owning it. However, at any time during your lease, you can purchase the vehicle from the leasing company, allowing you to trade it in or sell it on your own. If you like to change cars every few years, a lease may be best.

Budget

Leasing often results in a lower monthly payment than financing. Rather than paying the car's retail price, you'll pay about 50 percent of that. The leasing company assumes the vehicle's future market value and only requires you to pay toward the car's depreciation amount, plus interest. If you have a strict budget, consider a lease if you can abide by the contract terms. Leasing can save you $100 or more per month than a comparable loan payment for the same car.

Restrictions

Since you don't own the leased vehicle and the company expects you to return it at the end of the contract, expect to stay within your mileage allowance. If you exceed your mileage allowance, the vehicle's resale value suffers. The bank can charge up to 20 cents per mile over the allowance. You also must maintain the vehicle. The leasing company will charge you for any repairs or maintenance that you didn't complete. If purchasing, you can do with your car as you please without concern for mileage, use or wear-and-tear. Consider a finance if your yearly mileage changes or if you don't consistently maintain your vehicle.

Warranty

Consider your warranty when deciding between a lease and a purchase. Leasing contracts usually are offered for a period of 36 to 39 months, so you'll remain under the vehicle's bumper-to-bumper warranty. If you plan to purchase, you may want to include the cost of an extended warranty with your purchase. Warranty prices are cheaper when a vehicle is new. If you are able to abide by your lease contract and continue to lease, you can enjoy driving a newer vehicle that's always under factory warranty.