Buy or Lease a Honda?

What is leasing, in a nutshell?

Is leasing right for you?

• Do you become easily bored with a car after only a couple of years of use? Do you feel the need to drive a new car every two or three years?
• Is driving a new car more important to you than actually owning one? Are you comfortable with continuous car payments, year in and year out?
• Do you maintain your car regularly, keeping it in good condition at all times? Are you comfortable with keeping your car the way it left the dealership, feeling no need to modify it way to suit your personal tastes?
• Do you drive a consistent number of miles each year? Are you comfortable selecting and following an annual mileage limit?
• Do you have a legitimate business use for your car? Do you plan on claiming your lease payments as a business expense?

Differences between leasing and buying

Buying:

• Monthly payments are applied to the actual purchase of the vehicle. Once the car is paid off, you're free to do as you please with it. You can keep it for the next ten years or sell it. Buying allows you to keep the vehicle for as long or as short a period as you'd like.
• Financing a vehicle usually requires a down payment. This can be in the form of cash or a trade-in.
• Monthly payments are higher than monthly lease payments because they're based on the total cost of the vehicle, not just its depreciation.
• A typical financing period is 48 to 72 months. After that, you own the vehicle outright with no more payments due.
• Maintenance is totally voluntary. While you should always keep your vehicle maintained for optimal performance and resale, there are no set requirements as there are with leasing.
• Because finance periods usually extend beyond the typical manufacturer warranty period, maintenance costs during a four- or five-year financing period will be higher than with a two- or three-year lease.
• There are no predetermined mileage limits, but higher mileage still causes greater depreciation.
• There are no limits to modifications you can perform on a financed vehicle. If you like fancy wheels, you're free to put them on.

Leasing:

• Monthly payments are applied to the depreciation and use of the vehicle, not the actual purchase. At the end of the lease term, you can either return the vehicle or purchase it from the lessor.
• Monthly lease payments for the same vehicle are lower than financing payments.
• Leasing often does not require a down payment. But a down payment can be applied as a means of lowering monthly payments.
• Leasing typically requires the replacement of the vehicle every two or three years. Once your lease is over, you'll need to buy the car or lease another right away.
• Early termination of the lease typically requires coming up with a significant amount of cash. Once you're committed to a lease, you have to stay with it for the duration or come up with the money to terminate early. The early termination penalty varies from lease to lease and the method of calculating the amount is explained in the lease.
• For some people, lease payments can seem endless. Once their current lease term is over, many simply start a new lease on another vehicle. Moving from one lease to another is convenient, but unless the lessee chooses to purchase the vehicle at lease-end, it often ties the lessee into a seemingly continuous cycle of leasing.
• Leasing sets predetermined annual mileage limits, usually 15,000 miles per year. Additional miles can usually be purchased before the lease inception to increase the mileage limit.
• Lease vehicles are usually covered under the factory warranty for the entire duration of the lease.

Lower payments and zero down...

Two- and three-year leases

Returning the vehicle at lease-end

Buying the vehicle at lease-end

Leasing Checklist

1. Shop around. Different dealers and manufacturers will offer different lease rates and are willing to negotiate for your business.
2. Read the fine print. Find out ahead of time about all hidden charges, i.e. destination, security deposit, registration fees, lease-end service charges, etc. Make sure you know the full story behind the "special" advertised price of $199 a month.
3. Stipulate a closed-end lease. If the actual value of the car at the end of the lease is less than its residual value, the lessor pays the difference You don't. Conversely, if the actual value is more, you have the option of buying the car for the fixed residual value, then selling it at a profit.
4. Check on insurance rates for the level of coverage required by the lessor. The lease agreement may require higher liability limits and lower deductibles than you currently carry, and both will increase your insurance premium.
5. Choose vehicles to lease that tend to hold their value well. The sexiest cars are not always the best buys in the world of leasing.
6. Negotiate the price of the vehicle before negotiating a lease arrangement. This prevents the selling price from influencing lease negotiation. Go into the lease negotiation with the selling price already set.
7. To avoid lease-end excess mileage charges, increase the mileage limit before you enter into the lease. Buying extra miles over the term of the lease is less costly than paying for the extra miles at the end.
8. To avoid lease-end wear and tear charges, maintain the vehicle well during the lease period. Lessors will not hesitate to charge you for perceived ill treatment.
9. Remember that if you decide to purchase the vehicle at the end of the lease, in the long run leasing may end up being more expensive than financing.