Wednesday, August 25, 2010

To Lease or To Own - That is the Question

By Scott Burns

It is usually better to purchase than lease. There are several reasons for this.
  • First, leasing commits you to operating cars in their early years of maximum depreciation. Since depreciation is the single largest cost of operating a car (by far), it means you’ll never get to have years of low depreciation costs.
  • Second, leasing commits you to operating cars for relatively short periods of time. So you will be making repeated sales tax payments as you move from car to car.
  • Third, leasing commits you to having a significant interest cost built into the operating costs of the car.

You can understand this by checking a regular exercise on the cost of car ownership done by AAA, the American Automobile Association ( ).

By purchasing a car new (or a recent model used car), you can drive it long enough to reduce the average depreciation and have zero interest expenses because you’ve owned it long enough to have the loan paid off.

Basically, you’ll have the lowest cost of transportation by owning a car for a long time. Doing that has gotten easier as cars have been built to higher standards of durability— 100,000 miles used to be an old car, but it isn’t today.

Are there any exceptions to this? Yes, but they are rare. There have been periods where some luxury car manufacturers have offered lease deals that would be lower than the cost of ownership for the period of the lease.

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