Lease or own: The right car option

As long car loans become the norm, more are turning to leasing instead. There are risks either way.

EMAIL  |   PRINT  |   SHARE  |   RSS
 
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By Peter Valdes-Dapena, CNNMoney.com staff writer

auto_car_mirror.03.jpg
Warning: Bad car financing decisions may catch up sooner than you think.
AOL Autos Best Buys
Cash and finance incentives makes these cars particularly good values right now.
Ford Mustang
Honda Ridgeline
Cadillac Escalade
Honda Civic
Buick LaCrosse
Ford Fusion
Chevrolet Malibu
Autos
36 month new5.91%
48 month new5.98%
60 month new6.03%
72 month new3.78%
36 month used6.31%

Find personalized rates:
 

Rates provided by Bankrate.com.

NEW YORK (CNNMoney.com) -- The life-span of auto loans is increasing, but customers who don't want to own a car for a long time are turning to a shorter alternative: leasing.

Six- and seven-year loans are becoming more common, according to auto-finance company GMAC. But in just the past six months, leasing has gone from less than 18 percent of new car sales to 22 percent, according to data from J.D. Power and Associates.

Car companies are happy to help either way by offering attractive lease incentives along with low-rate financing incentives. Each option has its pluses and minuses.

"This is probably one of the hardest questions to answer for other people," says Phil Reed, consumer advice editor for automotive Web site Edmunds.com.

It really comes down to knowing your own car-buying habits. The question you have to ask yourself is this: Am I a long-term or short-term car owner?

For customers looking for low monthly payments, who like having a new car all the time, a lease is the smarter choice. For those who don't care about having the latest in automotive technology and styling, financing is the way to go.

With a lease, you never actually own the car. Instead, a bank or finance company buys the vehicle and lets you keep it while you make monthly payments.

Your payments are based on the amount of value the car is expected to lose during the time you have it. That's why the payments are usually much lower than they would be if you financed a purchase. You're only paying for use of the car, not the whole car.

When you take out a long car loan your car will lose value fast while you're paying for it slowly. If you decide you want to trade the car in after a few years, you may find yourself "upside down," owing more money than the car is worth.

But financing offers more flexibility. As long as you make your payments on time, you can do what you want with your car when you want to. And payments will end, after which you will have a fully-paid-for set of wheels.

A lease is much more restrictive. Getting out of one early is tricky - if you can do it at all. And if you fall in love and decide you to keep the car after the lease term is up, you could find yourself paying hundreds or even thousands more than you would if you had simply bought the car to begin with.

If you decide to lease, remember: contracts are negotiable. Try to get the best deal you can with lowest monthly payments and the most miles. Leases are written for a certain number of years and a certain number of miles. Driving more than the allotted number of miles gets costly, fast.

For most car buyers, the best choice is to simply buy a car you can afford to pay off in a relatively short period of time. It may mean forgoing the luxury badge, all-wheel-drive or the high displacement engine. But you'll be minimizing the cost of having a car.

"It's all lost money, anyway" says Reed. To top of page

Features
They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
These 10 food trends could dominate 2015 So long, kale. Here's what's expected to shake up the food industry next year. More
Beyond Russia: Geopolitical hot spots in 2015 Investors beware: These 5 global crises are likely to rattle the stock market and world economy. More
These 20 antique guns could fetch big bucks Morphy Auctions in Pennsylvania is putting nearly 1,000 old guns on the block. Here are just a few. More


Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.