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Is Leasing a Car Smarter Than Buying?

Buying a car can be expensive, and with budgets stretched to the breaking point, many would-be car buyers are looking at leasing as a possible lower-cost option. But is leasing a smart move?

In the following video, Motley Fool investment-planning editor Lauren Kuczala talks with longtime Fool contributor and financial planner Dan Caplinger about the pros and cons of leasing a car versus buying. Dan explains how leases work and goes through the pros and cons of leases, explaining how many automakers offer incentives for customers to get favorable lease terms. In addition, he discusses the recent decision from Tesla (Nasdaq: TSLA) to offer a lease-like financing option that's technically not a lease but which includes some of the same attractive traits. Dan closes by offering guidance on how to decide whether leasing is right for you.

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Read/Post Comments (11) | Recommend This Article (15)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 28, 2013, at 3:16 PM, Drrwd40 wrote:

    More facts not stated in this educational piece.

    End of lease provides 4 options to individual.

    1) buy car for set amount agreed to at time of contract. $20k car 3 year lease residual for like $13k. Calculate value of car at KBB.com and see if higher , even or lower than residual value.

    Pay cash or get loan to finance residual.

    2) walk away from car by just giving keys back to dealer. ONLY time you "pay" for mileage. Life changes are easier to work around not tied to long term loan on one type of car.

    3) use car as trade in for next vehicle. Residual of $13k, low miles and good condition trade in value of $15k equals $2k towards down payment.

    4) sell your car. $13k residual and $15k value equals $2k profit.

    Everyone has transportation expenses. Bus, shoes, lease payment, maintenance costs, etc. a set lease payment is easy way to plan transport budget that will likely never include engine repairs, tires or new timing belts.

    Hope this helps.

  • Report this Comment On April 28, 2013, at 3:18 PM, CoastyST2 wrote:

    This is not a one answer covers all options. I was raised in Southern NM where a trip into town was 75 miles one way. You would put 30,000 miles a year on a car. Leasing was not an option unless you had that money tree in your back yard. Living in Ohio now where we put about 9,000 per year on the car so leasing might be a great option. Our friends do so every two years and sell the leased car privately and make a little money every time. I have yet to figure out how that works but they have been doing it for 20 years so it must work for them. I lived in SF CA. for several years and only owned a small vespa scooter. Finding a parking place on the streets was insane so leasing there was a bad idea!

  • Report this Comment On April 28, 2013, at 4:04 PM, AutobahnSHO wrote:

    Hmm, for a couple hundred more than the "starting fees" of a lease, I bought my car, a then-11yr old Subaru with 120k miles on it. No maintenance for 4years. Owned outright.

    I just spent $2200 in maintenance on it last December and hope to drive it at least 2 more years while spending nothing more it than oilchanges and tires...

  • Report this Comment On April 28, 2013, at 5:07 PM, MUDFLAP514 wrote:

    You can't serve two masters....it can't be in your best interest and the dealer..one loses..and it's you if you lease! However if you have more money than brains and you like the idea of renting a car like you do an apartment then fine...but it's the fees at the end of the lease....how about sitting there and read the entire agreement and ask them questions...oh yea we all do that.. Here's one item that right off favors the dealer...Your first monthly payment and a down payment is due,.....You have any idea what that does to THEIR YIELD for the 1st month....??..you lend someone $40,000 (car) and have them pay you a lease payment let's say $399 and a down payment of $2,999.00...Not bad for the first month.....

  • Report this Comment On April 28, 2013, at 5:09 PM, yahoouser4529 wrote:

    Definitely not. Leasing has mileage limits and that's the worst part. Being a high mileage driver, I can't see how 12000 to 15000 miles is enough for me an year. At times I have to drive 1000 miles a week, up to 300 miles per day. I put over 40,000 miles an year on my car anyway. Better to buy car, pay it off. You have no mileage or use restrictions

  • Report this Comment On April 28, 2013, at 6:20 PM, Cookiemissdream wrote:

    I am a widow..husband killed in Iraq....last car I owned I ran to 223,000 miles...a Chevy Lumina that was never meant to go that long...i took good care of it...but when I started to worry about flames shooting out from under the hood in the garage in the morning....time to do something.

    Leasing has been good to me.......and not having to worry about car problems and solutions...is priceless...:) I make a phone call and its all taken care of ...that works for me....

  • Report this Comment On April 28, 2013, at 7:08 PM, backhousepirate wrote:

    this is my business and while no one answer is right for everyone, for the vast/vast majority, leasing is for losers. Don't think you're the exception, you are NOT!!!! Avoid leasing at all costs. Cars lose value big time, and the less car you purchase the less you will lose. Don't be one of those fools that drives more car than you can afford so you can impress the person (you don't know) next to you at the stop light.

  • Report this Comment On April 28, 2013, at 8:57 PM, MrTones wrote:

    I love leasing ... Every three years I get a new Audi, I never pay for tires, timing belts, alternators, etc. I never have to worry about the car breaking down. When I need maintenance I drive it to the dealer, pick up my loaner car and wait for them to call me when mine is ready. If the car won't start they pay to have it towed to the service department. I don't even pay for regular maintenance because it's covered in the lease. I have neither the time nor desire to deal with a car. I just want to know it's there when I need it. I am willing to pay for it because I believe it is a good investment (more time, fewer headaches, etc)

  • Report this Comment On April 28, 2013, at 10:58 PM, Monclover wrote:

    You can give all the pros and cons. I still would rather lease a car than own one. I don't want the car at the end of the purchase or the lease. I want another car and I am willing to pay "Use Cost." Car models come and go and when they go you are stuck with a car model no longer in production. Car Dealers discount that vehicle on trade-in. With a lease I can care less. I simply look around for another car when the lease is expiring. Why should I pay for some residual value.....to me it's a very poor investment if you even want to refer it to an investment. Those who purchase say that at the end of a lease you have nothing left.....I don't care in the least.

  • Report this Comment On April 29, 2013, at 1:05 AM, jdixter wrote:

    I didn't even read this article. The "lease vs. buy" articles were played out around 2001.

    Short answer: Buy 2-4 year old used car, add a 3 or 4 year maintenance contract (from GE or Zurich) with a $100 deductible and drive the wheels off of the car.

  • Report this Comment On April 29, 2013, at 8:26 PM, snickerdoodle9 wrote:

    I knew that my 1999 Ford Escort ( 12 years old in 2011 ) was running on " borrowed time " after being in an accident for the first time since I have had the car . I had managed to make it into retirement before major maintenance issues began to nickel and dime me . Once a car has been hit due to the force of impact it will never be free of major problems outside of keeping up the basic maintenance care . I bought another car ( 2007 PT Cruiser ) in May of 2011 . The mileage was very low and had been well cared for by the previous owner . The first of what would have 60 months of payments were to begin the following month . Being in retirement I did not want to be paying monthly payments in which the price of the car would would have doubled with the interest tacked on over 5 years . With that said my first payment was my last payment . I sent the bank certified check for the full payoff amount that said " paid in full " .

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Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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