Lease or Buy?

A common argument between auto drivers (and there's a lot of them) is whether it's better to lease or buy your car. The real answer? It depends. And that's no joke. It really does depend on what your goals are and how your vehicle fits into that. But it's not complicated. I'll give you a few rough rules of thumb that you can follow.

For Business or Personal Use?

There's a myth that if you're getting a car primarily for use in a business, then it's better to lease. That's not true. People assume that the business can lease a car and the owner can tool around in the car for personal purposes as much as she or he wants, but the business still takes a deduction for the full value of the lease.

That's not true if you intend on following the tax laws. Whether you lease or buy, the business should only be paying for and deducting the portion of auto usage that is actually for business. If the owner uses the car for personal purposes, she or he should either reimburse the business for that value or recognize it as income on her or his personal tax return.

Length of Ownership

If you're the kind of person who gets a car and uses it until it dies, you're definitely better off buying. Find a reliable car at a reasonable price and keep it forever. Once it's paid off, the only cost you'll have on top of operating costs is repairs. Of course, there comes a point in every car's life when repairing it is not worth the cost, and then it's time to buy a different car.

What about the person who likes to drive a new car every two or three years? If that's the case, you are often better off leasing. When you lease, someone else takes the risk on the value of the car at the end of the lease. You also have the convenience of not having to resell the car when you're done with it, or haggle over a trade-in value with a dealer. When you're done with the lease, you're done.

Whether getting a new car every two to three years makes financial sense doesn't matter. What matters is your out-of-pocket cost for using that car for two or three years. And many times the cost to lease is lower when your holding period for the car is short.

Personal Preference

Disregarding what the smart money people will say, there are plenty of people who want to drive really nice cars. Leasing can often put someone in a higher value car, but at a lower monthly payment than they'd have if they purchase it.

Yes, a consumer would be better off financially by buying a car and holding it for the long-term, but for those with short-term expensive tastes, leasing is perfect. Leasing a car for the rest of your life probably isn't the wisest money move you can ever make. But it does have some advantages that shouldn't be disregarded.

The bottom line on the lease versus buy dispute is that your personal preferences and intended holding period for the car are the biggest factors that should drive that decision. The smartest money is on buying a newish pre-owned (used) and economical car, and driving it until it dies. But don't feel bad if you have other preferences and you can afford to be a little less frugal.