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The Budget Doctor Q&A

Question: I can now lease my dream car for $359 a month. I can't afford to buy it, but why shouldn't I lease it for that amount?

Answer: PR, you may want to do just that. You should, however, carefully consider the difference between leasing and buying.

First of all, remember that a lease is just a long-term rental. When the lease period is over you own nothing. You can't use the car as a trade-in on a new car, or sell it, or drive it a few more months with no payment while you save a few dollars.

On the other hand, this rental is your long-term responsibility. You still need to perform regular maintenance and keep the cat off the roof. You need to insure it and you need to watch the mileage. If you have a 48 month lease that gives you 1,000 miles per month and charges 20 cents a mile beyond that; you can face a $1,000 charge if you drive 53,000 miles, or just 104 extra miles per month. If you also scraped the curb a few times and got keyed in the mall parking lot, you could pay another $1,000 in damages. Some leases also include a disposal fee, which is a charge for returning the car.

Some leases also require a down payment. These down payments or "equity reductions"; are a way to make the monthly payments more manageable. If you add up all of the costs involved in initiating a lease, the total of the payments, and add $1,000 for likely damage or mileage charges, you can estimate the real cost of leasing that car. Divide that amount by the number of months you get to drive the car and compare it to the payments for buying the car. The difference is what you would pay to own the vehicle. Only you can decide if either deal is a good one for you. Of course low interest rates offer some advantage for buyers, so consider the loan rate you could get.

Often the choice depends upon how "gently" one drives, or how far, or how much of one's self-esteem is wrapped up in a car. If you prepared a budget that permits you to spend $359 a month on a car, you get to decide if you’d rather drive a Japanese compact and own it after four years or a German luxury car and return it after four years. But don't confuse a lease payment with a loan payment.

Good Luck! The Budget Doctor