Here are some guidelines to help you decide.
You decide, using these guidelines.
Do you generally continue to drive a vehicle after you've made the last payment, and enjoy that feeling of "free" driving? If so, you're generally not a good candidate for this type of financing. You'll do better to negotiate carefully and buy the car you like. After that last loan payment you'll own an asset (your car) that goes on providing transportation.
Well, why can't I just lease a car to get that low payment and then buy the car at the end of the lease? You can, but you'll probably pay a hefty profit for that short-term payment benefit. Unfortunately, many leasing companies work you on the value of your old leased vehicle. If the vehicle is worth more than the amount your lease contract guarantees you can buy it for, they encourage you not to buy it. If you decide to buy at the end of the lease, you're going to need another loan right then to buy it. You'll end up paying three or four more years on the car. Do you want to be making payments seven years or longer on the same vehicle?
Do you always trade for a new car before the old one is paid for? Are you the type of person who always has car payments? Many people do. That makes you an initial candidate for leasing. That's about the only real benefit for leasing if it is done right. But think about the rest of these points.
Just how stable is your job situation? If you have any doubts about your job security, income, or budget, don't lease. If you buy a car and have trouble making the payments, you have a perfect right to sell that car for as much money as you can to pay off your loan. If you lease a car and have trouble making the payments, you don't have the same rights. In fact, you'll pay significant penalties if you break a lease early. Leasing is therefore safest for those who hold down a secure job and are in good shape financially.
Well, my budget is so tight I barely break even each month. Should I lease? First, if you're having budget problems, you probably shouldn't trade cars at all. Think about fixing up your old car. Talk to us, and maybe we can help you with a fix it loan. If you don't want to fix up your old car, think about buying a carefully checked-out used car. We can really help you there. Don't lease a car if you're barely meeting your budget.
What about leasing if I have poor or nonexistent credit? Leases like this are very popular now, because they are the hot, new profit darling of the leasing industry. But stay away from leasing if you have credit problems. These sub-prime cut leases, as they are called, will ruin you and provide you a junker, to boot. Virtually all of these leases are on junker used vehicles.
How many miles do you drive a year? Wow, is this an important question, as we said! Most lease payments are based on the fact you will drive no more than 12,000 to 15,000 miles a year during the lease. Some rip-off leases (usually a "sale" lease payment) are based on a paltry 10,000 mile yearly driving mileage allowance. (See the annual mileage calculator in Chapter 3.)
So, imagine what's going to happen if you are a high-mileage commuter who drives 40,000 miles per year. On an average three-year lease, do you know how much cash you would need to hand over to the leasing company because of those extra miles? From $5,000 to $11,000! What's the moral here? If you're a high-mileage driver, a leasing-type product may not be for you unless you make absolutely sure the lease is based on the actual miles you'll drive.