Car Talk: Buy or Lease Your Next Car?

Decisions abound when you're purchasing a new car, and one of the biggest is whether you should lease or buy. The answer will be dictated by your personal financial situation. If you establish your priorities first, you should have no problem making the right decision.

If you're confused over whether you should buy or lease a car, you'll arrive at a solution if you think about your individual needs. There are pros and cons to both a car loan and a leasing arrangement. Analyze and compare them to your current situation. It's like picking out a car model or color: There's no right decision, only a matter of preference.

Short-term needs vs. long-term value

The biggest question in the lease vs. buy conundrum is whether you need money immediately, or if you can afford a long-term perspective. You can pursue two strategies: If you want to get the lowest payment possible, consider leasing. With a lease, you're only covering the car's depreciating value and the lease's finance charges. Calculated into a monthly payment, this will be substantially lower than what you'd pay per month if you bought the vehicle.

The alternative is to purchase. Even though you'd have a car loan, you stand to save the most amount of money long-term if you run the automobile until the day that it dies. After three or four years, your auto loan payment will be gone, and you'll be able to use that money elsewhere.

Maintenance costs: The overlooked variable

The argument for buying and recouping the money over the long-term is valid, but you'll eventually be driving an older a set of wheels that will require a lot of maintenance. Even if you did your homework upfront and bought a reliable model, vehicles with higher mileage tend to require more repairs. To make this a cost-effective choice, you have to be willing to drive an older car as long as possible.

With the lease option, repair costs are not an issue, because the vehicle that you're driving is never more than three years old. You simply change the oil and drive. You don't have to worry about the stress of frequent maintenance trips and quirks of an older model.

Mileage matters

Mileage is a critical issue. Most leases have three-year limits of either 12,000 or 15,000 miles. If you exceed the limit, you'll need to pay more for each additional mile that you drive. One way to avoid the excessive mileage costs is to pay for miles upfront. Negotiate the costs before you buy the car, and shoot for a cost of 10 cents per mile.

These factors should give you a sense of how a lease vs. buy arrangement would accommodate your lifestyle. Remember, your decision should be based on how these variables will work with your short and long-term financial goals. There's no right or wrong answer for this topic-only you can make the right call.