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Does it ever make sense to lease a car?

Posted by Cheryl Costa  August 16, 2008 07:59 AM

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When, if ever, does it make sense to lease a car? Is it a prudent or bad financial decision?

There is no doubt about it, leasing is a very popular option these days. When you lease a car, there is often a very low (or no) downpayment required, you pay less in sales tax, and your monthly payment is usually lower as well. Leasing generally allows you to drive a nicer car than you could otherwise afford and it costs you little in the way of out of pocket cash. Maintenance costs are also generally lower because most everything is covered by the new car warranty.

Everything sounds good so far, right? The only problem is that when you lease your cars, you always, always have a car payment. When you buy your cars, you have higher costs in the early years of ownership but after a while, the car payment (if you have one) drops off and you typically have 4 or more years of relatively low cost driving. Study after study has proven that it makes the most financial sense to buy your cars and keep them for 8 to 10 years. If you do this, your total costs are far and away lower than leasing several cars over the space of 8 to 10 years.

The problem is that some people can't (or don't want to) commit to keeping the same car for that amount of time. For personal reasons, it may be important to them to have a new car every 2 or 3 years. Also, some people who lease argue that the money they "save" each month by leasing can be invested in the stock market and then they aren't sinking as much money into a depreciating asset. (I don't know that too many people are making that argument these days, but it used to be a popular leasing "pro")

At the end of the day, buying your car and planning to own it for 8 to 10 years is the best financial option but not all decisions are financial. If you do decide to lease, be sure to read the fine print on your contract. It is fairly common for additional fees to be added at the end of the lease. If you exceed the permitted mileage allotment, expect to owe additional fees. Also, it is common to see fees added for excess wear and tear.

This blog is not written or edited by Boston.com or the Boston Globe.
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ABOUT MANAGING YOUR MONEY
Local finance professionals share insights and advice on issues such as budgeting, managing debt, and retirement planning.

About the contributors

D. Abraham Ringer is a CERTIFIED FINANCIAL PLANNER practitioner and a Financial Adviser with Morgan Stanley Global Wealth Management in Boston. He is registered in MA, NH, NY and several other states to which his articles are directed. For more information please visit www.morganstanleyfa.com/ringer
Financial Planning Association™ of Massachusetts has 900 members who specialize in the financial planning process. Many of its members engage in philanthropic pro bono work in their communities, recommend legislation, elevate public awareness, promote financial literacy, and advocate for sound economic and tax policies.
Odysseas Papadimitriou is the founder of CardHub.com, a credit card and gift card marketplace, and WalletHub.com, a personal finance site. He has more than 13 years of experience in the personal finance industry, and previously served as senior director at Capital One.

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