To Buy or Lease?

It's no easy thing to buy a car, let alone be a woman buying a car. Dealers are notorious for not treating our questions with the same respect they accord a man's. The best advice we usually get? Swallow your pride and independence, and bring along your boyfriend, your dad, or your brother.

In reality, you might be better off without the extra testosterone. According to Jack Gillis, a contributing correspondent for NBC's The Today Show and author of The Car Book (HarperCollins), women generally make better car purchases than men because we think we don't know a lot about cars, so we do far more research before we buy. And, strangely enough, we're less likely than men to make an emotional decision on the showroom floor.

No big surprise that we're better car buyers, but what about leasing? You've seen the ads: No money down! $199 a month! Thanks to lower monthly payments, you can often afford to lease a better car than you could buy. Leasing also allows you to get a new car every two or three years, and you'll have fewer maintenance headaches since major repairs are usually covered by the manufacturer's warranty. Leasing is safer than ever, too, thanks to the Federal Consumer Leasing Act, which went into effect in January 1998. This legislation requires companies to detail the fine print in their leasing contracts before you sign on the dotted line.

But while leasing seems like a great deal on the surface, it might not be the best option for you. Here's the scoop. With leasing, your monthly $199 pays for the difference between the price of the car and its value at the end of the lease period. In other words, you pay only for the portion of the car that you use during a two- to three- year period. At the end of that time, you turn in the car to the lease company like a pair of rented roller-skates, and you're free and clear.

(To make a short story long: The depreciation (or "residual value") of a car depends upon the model, the lessor (i.e., the bank or independent lease company), the amount of miles you anticipate driving, and any special promotions (such as a manufacturer's rebate). In most cases, the lessor, not the dealer, sets the residual value. The lessor also sets the interest rate, called the "money factor" or the "rent charge" in lease talk. This figure is usually expressed in a weird fraction, like .0038, which you must them multiply by the number of months in your lease in order to get a recognizable figure that represents your interest rate. So, if you want to find the best deal, you should shop around among different lessors.)

On the other hand, when you buy a car, you take out a loan for its full value, which translates into a larger loan and higher monthly payments. But once you've paid off the loan, you own the car: you can trade it in, drive it until it drops, or sell it. (Keep in mind that buying a car is not an investment. The value of a car will never increase with time, unless you hang on to it for decades and it happens to become a classic.)

Before you head down to the dealership to check out the newest models, take a few minutes to weigh your options:

The pros of leasing

- Lower monthly payments

Because you're paying only for the depreciation of the car over the lease period – the portion of the car you actually use – monthly payments are 30%-60% lower than you'd pay if you bought the same car.

- A fancier car

Because you pay only for the portion of the vehicle that you actually use, you can generally afford to lease a nicer car than you can buy.

- Fewer maintenance headaches

A manufacturer's warranty usually expires after two or three years. If you buy your car instead of leasing it, you'll have to pick up the tab for major repairs after that period. (Obviously, you should never lease a car for a period longer than that covered by the manufacturer's warranty.)

- Little or no down payment

A well-negotiated lease will have little or no down payment, but dealers often try to get you to put money down anyway. Don't do it. Remember, you're not buying anything, so there's no reason to "get it out of the way" early on.

- No used-car hassles

At the end of the lease, you don't have to worry about selling or trading in your car because you don't own it.

- Lower taxes

In most states, you pay sales tax only on your monthly payments, not on the entire value of the car. And if you drive your car for business, it's easier to deduct driving expenses, because rather than keeping a log, you can lease the car in your business's name.

The cons of leasing

- No equity

As you pay off a purchase loan, you build equity in your car, and after your loan is paid off, you can sell the car, trade it, or drive that sucker for as long as it lasts. When you lease, you don't own anything--you're essentially renting the car.

- Leasing is more expensive in the long run

When you buy a car, you have the option of spreading the cost over a longer period of time, and one day--when that loan is finally paid off--you'll no longer be making monthly payments. With leasing, you're always making a monthly payment, and over the long haul, it adds up to higher costs. For example, if you buy a car, pay it off in four years, then drive it for another four years, the cost of the car spread over those eight years will be cheaper than if you leased three or four cars in that same period.

- Excess wear-and-tear charge

Lease companies can charge exorbitant fees for little nicks and dings when you turn the car in. If you decide to lease, you'll have to be careful to keep the car in tip-top shape.

- Mileage limits

Leases usually have a 15,000-mile limit. If you go over the limit, you'll have to pay 10 to 25 cents (!) for each extra mile at the time you return the car. If you anticipate exceeding the mileage limit, you can often buy extra miles up front at a much cheaper price.

- It's expensive to break a lease

If there's any chance that you'll change jobs, lose your steady income, or leave the state, leasing is not for you. Breaking a lease is really, really expensive. Basically the leasing company is going to want all the money you promised them in the first place--except they'll want it all at once. A lease is a contract, with legally binding terms, and leasing companies usually don't like for the vehicles they own to leave the state. If you anticipate moving soon, you'll need to make sure your lease contract allows you to leave the state without having to pay a fee.

Deciding whether to lease or buy is only the first step in choosing a car. Next comes research. It's what we independent women do best, and there are plenty of resources on the Internet to help you calculate monthly payments, compare prices, and avoid dealer scams.