Buying a Car

Need advice and help buying a car? This free lesson covers car buying tips and the things you should think about before making a purchase.

The leasing option

Instead of buying a car, you may want to consider leasing one. When you lease a car, you do not own it. You enter into a long-term rental agreement that allows you to use the car, but you must return it at the end of the lease unless you choose to buy it.

Buying a car—whether in cash or through financing—and keeping it for a long time is the least expensive way to go. However, there may be times when leasing is a good option.

Advantages of leasing

  • Leasing allows you to get a car that you might not otherwise be able to afford, and it keeps you in newer-model cars. When your lease is up, you can turn it in and lease a new model.
  • Leased cars usually have a low down payment and lower monthly car payments.
  • If you lease for a term that coincides with the length of the manufacturer's warranty coverage, you will be covered if something major goes wrong with the car.
  • Leasing may make good financial sense when the vehicle is used for business purposes. In order to earn a tax break, though, you must prove that you need the car to perform your work. Commuting isn't included in this. Ask a tax advisor for help.

Disadvantages of leasing

  • You do not own the car at the end of the lease.
  • If you decide to buy the car at the end of the lease, it usually ends up costing more than it would if you had obtained a traditional car loan.
  • You are limited in the number of miles you can put on a leased vehicle without having to pay penalties.
  • Most leases limit wear on the vehicle during the lease term. You will likely have to pay extra charges for exceeding these limits if you return the vehicle.
  • If you want to end your lease agreement early, you may be responsible for contract-termination charges.

Keep in mind that if you would like to keep a car for a long time, customize or paint the car, install a stereo, or drive long distances, leasing may not be the best option for you.