Personal Finance

To buy or lease your wheels? That depends

The Mercedes-Benz dealership at 4250 North State Road 7 in Coconut Creek. Because luxury cars depreciate significantly, it usually makes sense to lease those, says Ron Montoya, senior consumer advice editor for Edmunds.com.
The Mercedes-Benz dealership at 4250 North State Road 7 in Coconut Creek. Because luxury cars depreciate significantly, it usually makes sense to lease those, says Ron Montoya, senior consumer advice editor for Edmunds.com. MIAMI HERALD STAFF

..With the price of new cars approaching what people once paid for a house, it’s no wonder leasing is growing in popularity. Almost 27 percent of new cars acquired in the third quarter of 2015 were leased, up from 18 percent in that same period in 2010, according to Experian’s State of the Auto Finance Market report. The average monthly lease payment was $398.

Whether it’s the right choice for you depends on how you use a car and what you can —or want to — afford.

“If you’re someone who wants to get a new car every couple of years . . . go with leasing,” says Ron Montoya, senior consumer advice editor for Edmunds.com, which provides reviews, consumer advice and links to approved car dealers.

While pure economics argues in favor of buying, “I always see it as more of a lifestyle choice,” he said. In South Florida, that goes double.

Leasing makes sense for someone who buys a new car every few years, because the payments are lower, repairs are usually covered under warranty and the car depreciates quickly in value the first few years you own it. Because luxury cars depreciate so significantly, it usually makes sense to lease those, Montoya said.

Buying makes sense for someone who keeps a car long enough to pay it off and then continue to drive it for years without making payments. Buying also may be the best choice for someone who is hard on cars, wants to customize a vehicle or who drives more than 15,000 miles a year, which adds to the cost of a lease.

“If they are somebody who wants to drive a car until the wheels fall off . . . leasing may not be for them,” said Scot Hall, executive vice president of SwapLease.com, which links people who want to transfer their lease to people who want short-term leases. (“We’re like a dating service for car leases,” he said.)

Consumers are starting to look at car leases the way they look at cellphone plans, as a service they pay for monthly, Hall said. Especially when monthly leases on some cars are priced less than a cable bill. (Rick Case in Sunrise, for instance, leases a 2016 Kia Forte for $147 per month including taxes. On many leases, initial payments are required.)

“We’re seeing less and less people wanting to drive a car into the ground,” Hall said. “There’s a lot of new and exciting technology being put into vehicles. . . . You’re going to have the latest and the greatest on a much quicker cycle.”

HONDA CIVIC TOP PICK

South Florida’s flashy car culture notwithstanding, the car most commonly leased nationwide, according to the Experian data, was a Honda Civic, which accounted for 3.6 percent of leases. It was followed by the Honda Accord and the Toyota Camry. The data comes from the third quarter of 2015.

Edmunds.com has calculators on its website (www.edmunds.com) that let you calculate the cost of buying vs. leasing.

Here’s the math:

New 2016 Honda Civics are currently for sale in Miami on Cars.com for $18,000 to $30,000, before dealer incentives. If you bought an $18,000 Honda Civic with a three-year loan, putting no money down but paying sales tax and registration in cash, your payment would be $516 a month at an interest rate of 2 percent, for a total purchase price of $18,576.

If you leased an $18,000 Honda Civic for three years, the payment would be $271 a month, based on a residual value of $10,800. That assumes you’d drive no more than 12,000 miles a year, and you’d make a security deposit of $500. If your lease allowed you to drive 15,000 miles a year, the monthly payment would be higher.

At the end of the lease, you’d need to lease another car — meaning ongoing payments — or pay the remaining $10,800 balance. If you finance the purchase, you will have three more years of monthly payments of $314, assuming a 3 percent interest rate. The final cost: $20,060.

The exact numbers will vary depending on the interest rate you pay on your loan, the car’s residual value at the end of the lease and whether you have to pay for excess mileage at the end of the lease (10 to 15 cents a mile, according to Edmunds). If you buy a car and make a substantial down payment, that would cut either your monthly payment or the length of your loan.

“It just depends on how long you own your car,” Montoya said.

ALSO CONSIDER:

▪ Insurance: If you lease a car, you may have to carry a higher level of liability insurance than you do with a car you own. Different insurance companies have different requirements, but check whether the car you want will raise your premiums more if you lease it, says Frankie Kuo, research analyst for Value Penguin, an online insurance referral portal.

That goes for buying, too. “One car can be considerably more expensive to insure than another,” she said. You may also need “gap insurance,” to cover the difference between what your insurance will pay and the cost of the car if it is significantly damaged in an accident.

▪ Making a change: If you need to get rid of a car, it’s easier to sell it than to transfer a lease, though most (but not all) leases will allow you to transfer them to someone else.

If you’re looking for the very best financial deal on a car, you would be wise to skip the new car altogether and buy a used car, since cars lose the most value in the first few years. Cars.com has a number of 2012 Honda Civics listed between $8,000 and $11,000, with 2015s starting at $13,000, and you can finance a used car through your bank or credit union as well as through a dealer. If you find a car you can pay cash for, you’ll have no payments at all.

Teresa Mears is the publisher of Miami on the Cheap and Fort Lauderdale on the Cheap. She drives a 1999 Honda CRV that she bought used 11 years ago.

LEASING VS. BUYING

WHEN TO LEASE

  • If you trade cars every few years
  • You go for luxury
  • Your car needs to be as tech-savvy as your phone
  • You get rattled by dealing with repairs

WHEN TO BUY

  • You hate car payments and want to make as few as possible
  • You keep your car far beyond the time you finish paying for it
  • You drive more than 15,000 miles per year
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