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The big question for anyone in the market for a new vehicle has always been, "Should I lease or buy my new vehicle?" For many, the smaller monthly payment on a leased vehicle is appealing. But, before you make a decision, you should be aware of the pros and cons of leasing versus buying.

OWNERSHIP:

When you buy a vehicle, you get the title after it's paid off. If you stop making payments, the bank can take your vehicle from you, which will adversely affect your credit history.

When you lease a vehicle, the dealer (lessor) owns the vehicle. Once the lease term ends, you return the vehicle to the dealer, pay excess mileage or wear and use charges that may be assessed, and walk away.

UP-FRONT COSTS:

When you buy a vehicle, you can pay cash or obtain financing. In most instances, you will make a down payment or trade in your current vehicle. You will have to pay taxes, license fees, registration fees, title fees, and other applicable fees and taxes associated with the purchase.

When you lease a vehicle, up-front costs are also involved. CCR (capitalized cost reduction) is basically the down payment; but in addition, you can expect to pay up front for the first monthly payment (including tax), security deposit, license fees, registration fees and documentary stamps. You do not pay tax on the total price of the vehicle, only the monthly payment. With good credit, you may be able to finance some of those up-front costs into your monthly lease payment.

MONTHLY PAYMENTS:

When you buy a vehicle on credit, your monthly payment will be determined by the loan amount times the annual percentage rate (APR). With good credit, you'll get a good APR, which will lower your monthly payment.

When you lease a vehicle, your monthly payment is actually a rent payment for use of the vehicle and is calculated based on the monthly depreciation of the vehicle. In addition to the base rent, your monthly payment will include tax for that monthly payment plus any lease finance fees.

PREPAYMENT OR EARLY TERMINATION:

If you buy a vehicle, it may be possible to make additional payments (prepay), or pay the loan off in its entirety before the end of the contract. This could save you money that you would be paying in interest, but your contract may or may not stipulate a prepayment penalty. Be sure to read the Prepayment clause in your finance contract before you decide.

If you lease a vehicle, you can return it before your contract ends, but most likely you will have to pay a substantial early termination

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