Economy Project: Buying Vs. Leasing Vehicles

By Sam Baker, KERA Morning Edition Host

Dallas, TX –

Needing to make room for new fall inventory, car dealers will soon hold major sales to entice consumers to either buy or lease vehicles. But which option works for best for you? Sam Baker talked about this with John Kurtz. He's spent 25 years in the credit union industry and is now a representative of the Texas Credit Union League. Kurtz says a decision about buying vs. leasing a vehicle basically comes down to your priorities.

John Kurtz: If you hold on to your car six or seven years, leasing is not for you. Now, if you're the type of person out driving the car. They don't want to think about the mileage they put on it. They get in it, go on that vacation, don't worry about the miles, leasing option is not for you. And a third thing you want to look at, when you return that lease - if you elect to do that after the lease - they're going to come and inspect the car, and they're going to adjust what you own them based on wear and tear. If that's not a priority in your daily life and keeping that car looking nice and well-maintained, then that's going to be hard for you to follow in a lease.

Sam Baker: Because one of the advantages of a lease is lower payment and perhaps more car for less money, but if you're the kind of person who's excessive in mileage or wear and tear and not careful with how you take care of your car, that can ultimately cost you money?

Kurtz: some of those leasing companies will adjust for normal wear and tear in the car, and some will get pretty picky. Make sure you understand what costs with the end of the lease if you choose to do the "walk away" option.

Baker: Given this down economy, does that give weight to one option versus the other, buying versus leasing?

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Kurtz: What you want to look at is whether the lease is going to be nice for you in terms of the value of the car. A lot of leases will help on the tax advantages and you need to check with your tax accountant on whether that's good or not for you on that. If you incur more expense by excess mileage or you incur damage, you can write that expense off on your business financials on that.

Baker: Insurance costs. Is that something to consider, leasing versus buying?

Kurtz: A lease agreement may require you to hold a little more coverage, maybe on the liability part. A lot of times that doesn't equate to a lot of extra money that you have to pay on that insurance premium, but it does affect it in some kind.

Baker: Are there things in buying vs. leasing that people tend not to take into account?

Kurtz: What you want to make sure you're aware of on a lease is that you understand the mileage restrictions - and be honest with yourself. If the lease company or the finance director says "Hey, the average is 12,000 miles a year, will that fit your driving style?" If it doesn't, tell them. You might want to get that mileage increased up to 15,000 miles, even 18,000, based on your driving conditions. Now, what that means is you're going to pay a little bit higher payment, but it's better to pay a little bit higher payment on that lease and be comfortable in a mileage area than be restricted on that mileage.

Baker: Certainly for getting a loan to purchase an auto, a good credit score is extremely important. Is it any less so for a lease, or maybe even more so?

Kurtz: Some lease companies there's a little bit more stringent credit criteria involved. But these days, leases can be flexible. They can be moved from the mileage that you drive. Some leases can be done even on pre-owned vehicles.

Baker: I used to think one of the advantages - just looking at it, not studying it -was that you could get into a lease for no money. And that's not that case?

Kurtz: You still can do it, but many companies will make you put down like a thousand dollars or the first couple of lease payments toward the down payment.

Baker: Is it any different when leasing vs. buying in terms of the amount of research you should do ahead?

Kurtz: Make sure you read the paper and you understand the costs of walking away from the lease. Make you understand what costs if there's a disposal fee involved. Make you understand what they define as excess wear and tear. And make sure you understand that if you do go over the mileage, what is that penalty cost per mile? And those are the three things you need to understand before you sign on that dotted line.

John Kurtz is a representative of the Texas Credit Union League with 25 years in the credit union industry.

You'll find more about buying vs. leasing and other economy issues at KERA.org/Economy

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Additional Links:

Investor Guide: Pros and Cons of Leasing vs Buying a Vehicle

Automotive.com: 'Car Leasing FAQ'

Texas Credit Union League