Should you buy or lease your car?

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If you’re thinking of replacing your car, you may be wondering if you should lease or buy your next vehicle. Leasing used to be commonplace only for businesses because of the tax write-off. Now, with deals like zero money down, low monthly payments, or zero percent interest, leasing has become a popular option among the general public.

There are many factors to consider when weighing leasing versus buying a car, say the experts at the Pennsylvania Institute of Certified Public Accountants (PICPA). Leasing may be a wise decision for one person, but may not make financial sense for someone else. Think about the pros and cons of each option before you sign on the dotted line.

The comparisons advantages of leasing

•Low down payments. A lot of the advertised lease deals assume a down payment, but you can often get a better deal just by asking. But don’t forget, the more cash you put down, the lower your monthly payments will be.

•Low repair costs. With a three-year lease, the factory warranty typically covers most repairs.

•Low monthly payments. Since you are only paying off the depreciation on the car —not its full value—monthly payments tend to be lower than if you opt to finance the purchase of the entire car over the same period of time.

•You pay sales tax only on the portion of the car you finance.

•Easy out. If you’ve taken good care of the car and it’s in good shape at the end of your lease, you will simply hand over the keys to the dealer and drive away with a brand new car and a new lease arrangement. You don’t have to deal with selling a used car or negotiating a trade-in value.

Disadvantages of leasing

•You will have nothing to show for your expense. Leasing a car is like renting an apartment. Your monthly payment does not go toward eventual ownership .

•Lack of flexibility. If you want out of your lease before the end of the agreement, you may encounter a financial penalty. Read the agreement carefully before signing.

•Hidden costs. If you exceed the allowable mileage over the course of the lease, you may be hit with a mileage charge. Also, be aware of any damage costs you will be liable for beyond normal wear and tear.

•Insurance issues. Depending on the type of insurance you carry, it may only reimburse you for the car’s current market value in the event the car is stolen or totaled in an accident. Some lease agreements will include extra coverage to protect against this. Discuss options with the dealer.

Advantages of buying

•It’s yours. You will own the car and do what you want with it, when you want.

•Buying a car makes long-term financial sense. It is more economical in the long run, unless you buy and trade-in regularly.

•Drive around the world. There’s no penalty for driving excess mileage.

Disadvantages of buying

•A higher initial down payment is generally required.

•You’re responsible for maintenance costs once the warranty expires.

•Trade-in or selling hassles when you’re ready to part ways with your car.

•More of your cash is tied up in a car, which depreciates in value.

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