Congratulations -- you've decided to get a new car. But now comes the hard part: buy or lease?
Which option you choose depends on financial priorities. Some factors to consider include how much you can afford in monthly payments, amount of cash on hand for a down payment and expected number of driving miles a year.
With leasing, you pay the difference between the car's sticker price and value when the lease ends, called residual value. Lease payments cover this change in value along with financing charges, fees and taxes. As a result, leasing is a good option for business travelers or people who like exchanging cars every few years and drive fewer than 15,000 miles a year. (Mileage is important because the higher a car's mileage, the lower its residual value.)
In the long run, buying often costs less than leasing because you own the car outright after the loan period ends. That means you can keep driving it long after you've made your last monthly payment.
But what makes more sense when monthly payments are a limiting factor, or short-term costs need to be taken into consideration? To crunch the numbers, turn to the online Buy versus Lease calculator from BankingMyWay.com. Enter the purchase price, down payment, sales tax and an estimated investment return (used to calculate the returns you might otherwise have earned on the cash you pay upfront). Next, enter the details of the loan (term, interest rate, fees and annual depreciation) and lease (term, interest rate, fees, estimate of residual value and security deposit).