“ Is it better to buy or lease a car / computer? ”

Conceptually, when leasing, you are paying for the use of the car or computer, rather than actually paying for the asset itself. In a lease, your payments cover the cost of the depreciation over the length of the term of the lease instead of the purchase price of the car or computer. You are expected to maintain it as if you own it, but, at the end of the term, you can either return it or exercise an option to purchase it.

Leasing is not for everyone, but within limits it offers an attractive and affordable means of driving a new car or upgrading your computer every few years. If you are contemplating a lease, you should consider your comfort level with the following:

Do you prefer to have a current model of car or computer? Do you feel a need to upgrade your computer or to drive a new car every two or three years?

Is using the asset more important to you than actually owning it? Would you be comfortable with continuous payments, year in and year out?

Do you maintain your vehicle regularly, keeping it in good condition at all times? Modifications to suit your personal tastes are seldom permitted. You generally must maintain your car the way it left the dealership.

Do you have any reservations regarding an annual usage limit? Most car leases have an annual limit of 20,000 or 25,000 kilometres. Excess kilometres result in additional charges of $.08 to $.12 a kilometre.

Do you have a legitimate business case for leasing a car or computer? Do you intend to deduct all or part of your lease payments in calculating your taxes?

If you answered "no" to the mileage limit and "yes" to two or more of the other questions, then leasing may be right for you.

Other Considerations

Lease vehicles are generally covered under the factory warranty for the entire duration of the lease. On a purchase, the financing period usually extends beyond the typical manufacturer warranty period. Maintenance costs during a four or five-year financing period will be higher than with the two or three year lease.

Lower payments and zero down sounds too good, but, leasing makes it possible. Since the amount a vehicle depreciates over a two or three year lease is less than the cost to finance that vehicle over the same time period, monthly lease payments are generally less - and considerably so in many cases. This allows the consumer two alternatives. They can use the money they save monthly for other things, or to lease a more expensive vehicle than they could normally afford to finance for the same monthly payment.

How much do you want to pay down? To arrive at the monthly lease payment, the lessor combines the vehicle’s estimated depreciation over the lease period with the interest being paid by the lessor to finance the car, plus various dealer fees. Most leases can be initiated with little or nothing down. This is because lease payments are based on a smaller amount than if the vehicle is financed. A down payment can be utilized to lower the monthly payments to an attractive figure; however, this goes against one of the main benefits of leasing, which is to get a car with little money down.

Some Cautions

Leasing is, without a doubt, confusing. Consider the following:

Shop around. Different dealers or manufacturers offer different rates resulting from the financing rate differences.

Read the fine print to ensure there are no hidden charges.

Ensure you are getting a "closed-end lease". With this type of lease, the lessor is responsible for the vehicle’s lease-end value. If the car’s value is less than the "buy-out" price, the lessor bears the cost. With an open-end lease, you will have to make up any shortfall between the vehicles value and the "buy-out" price.

Arrange your own insurance. It is generally cheaper than going through the lessor. This includes the life and/or disability insurance offered by the dealer.