Buying vs Leasing a Car

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Pros of Leasing

There are some good reasons why people like leasing vehicles. Some of them are listed here:

• Many leases don't require a down payment or at least not a very high down payment.
• You probably can lease a more expensive car than you'd be able to buy.
• When your lease ends, you don't have to worry about getting rid of your car. You simply give it back.

Cons of Leasing

There are, however, some not-so-good aspects of leasing a car:

• The total cost of leasing is almost always more expensive than buying a car with cash and is also usually more expensive than financing a car.
• When your lease ends, you're out of a car.
• If you decide to buy the car at the end of the lease, you will owe sales tax.
• Most lease agreements impose mileage limits. If you go over the number of miles allowed, you'll have to pay a big penalty.
• Leasing doesn't cover insurance or maintenance, so you don't save costs.
• You might have to pay for the dealer's cost of auctioning the car when your lease expires. These fees are called disposition charges.

If, after considering the pros and cons, you de-cide to lease a car, there are some things that will be important to remember. The number one rule is to do your homework. There are as many lease deals as there are kinds of cars. Check out websites such as carpoint.msn.com or intellichoice.com, or visit your local book-store for more information about leasing.

When you feel that you're sufficiently prepared to negotiate a lease, keep these tips in mind:

1. Always get a closed-end agreement. This type of agreement enables you to turn in your car and say adios. If you fall in love with your leased vehicle, you can negotiate for it, but you won't be obligated to buy it.
2. You're still responsible for repairs when you lease a car. Make sure you know in what condition you're expected to return the car.
3. Negotiate the highest residual value on the vehicle that you can. If you decide to buy it, you can renegotiate. If you don't buy it, you'll end up paying less for the part of the car's value that you've used.
4. Be up front with the dealer about how many miles you plan to put on the car each year. If you exceed the dealer's limit (usually around 15,000 miles a year), you'll be fined, big time.
5. If you drive 10,000 miles a year or less, ask whether there is a low-mileage discount available. Be persistent if the dealer is reluctant to give it to you.
6. Check out the manufacturer's warranty on the car. This is a written guarantee for the condition and performance of the car that makes the manufacturer responsible for repairs or replacement, and is a good guide as to how long your lease should be. You don't want to end up paying for costly repairs.
7. Don't sign a lease for longer than you'll want the car. For instance, if there's a possibility you'll be transferred to Singapore for work in two years, don't sign a three-year lease. You'll be penalized for breaking the lease.
8. Find out what happens if you lease a lemon. Cars you buy are covered by lemon laws. Make sure there's a similar provision if you lease.
9. Make sure the lease has gap insurance. Ask to have it included in the agreement with no additional charge. Gap insurance pays the difference between the value your insurance will pay if your leased car is stolen or totaled and the amount you're obligated to pay to terminate the lease.

   Show Me the Money

   A warranty is a written guarantee for the condition and performance of the car. It makes the manufacturer responsible for the repair or replacement of defective parts.

   Gap insurance can be included in your lease agreement. It pays the difference be-tween the value your insurance will pay if your leased car is stolen or wrecked and the amount you owe when you terminate the lease.

10. Don't let a dealer talk you into a lease agreement that's shorter than what you want. The dealer is anxious to get you back into the show room to look at another car. Some dealers will push for very short leases for that reason, and it could end up costing you more than necessary.

Lease agreements are notorious for being complicated pieces of confusing legalese, decipherable only by a Harvard Business School Ph.D. But if you know what to look out for, you can approach the whole process with a lot less aggravation.

The more you know about leasing and lease agreements going into the showroom, the less likely a salesperson will be to take advantage of you and give you something you don't need or want that will cost extra money. Remember these definitions:

• Capitalized cost  The price you pay for the car.
• Finance charge  The interest you pay on the car.
• Residual value  According to the dealer, the amount the car is worth when the lease is over.

Compare these numbers in every agreement you look at. Read up on leasing, be prepared with questions, and don't be pressured into getting something you don't want. If you decide to lease and follow those guidelines, you'll do just fine.