1) Leases have mileage limits where you’re penalized if you drive over that set amount; these penalties can range from five to 20 cents a mile. It’s important to determine ahead of time how you’ll use the car (for short- or long-distance driving) and what those mileage limits are. A cap of 40,000 miles will allow you more wiggle room than 30,000, but you’ll pay extra up front.
2) A lease allows for normal wear to the car, but if the dealership considers the vehicle to have wear and tear above normal at the end of the lease, they can charge you extra. You can get a better idea of what “normal wear” means by quizzing the car dealership and studying the lease terms.
Now, let's do a comparison between leasing a car versus buying a car, using a 2014 Honda Accord Sedan as an example:
Leasing a Car
After $1,999 down, the lease payments are just $199 a month for a 36-month, 36,000 mile lease. The total cost for three years comes to $9,163. Let’s assume you found a similar lease again for another three years. Your total cost comes to $18,326, or $3,054 a year for six years.
Buying a Car
The same vehicle had a target price of $20,840. If you put the same $1,999 down and financed the car for 48 months at 2.5%, your monthly payment would come to $412.88. At the end of the four-year loan, the total cost to purchase the car (including interest) comes to $21,817. Over six years, your annual cost would come to $3,636 a year.
So far it seems like leasing is way cheaper … by almost $600 a year!
But wait!
After the loan is paid off, you own your car. You have an asset. According to Kelly Blue Book, a 2008 Honda Accord LX in mid-grade condition fetches about $10,000 on the private market. So whether you sell the car or apply the trade-in value toward your next purchase, your actual cost of ownership is reduced to $11,817 or $1,969 a year. That’s a savings of $1,085 a year and $6,508 over six years.
The Bottom Line
Although one of the drawbacks to buying a car is the need for more regular maintenance as it gets older, the savings over leasing should provide plenty of cash leftover.
There are some exceptions for business owners or others who can deduct certain vehicle costs. For everyone else, leasing a car should be considered a luxury.