Buy or Lease a Car

Kevin McCormally: I am Kevin McCormally of Kiplinger's with Mark Solheim. A Senior Editor of Kiplinger's Personal Finance Magazine. We are talking about buying versus leasing a car. Mark, a lot of people shopping for new cars, who doesn't make sense for to buy a car versus lease a car? Mark Solheim: It makes sense to buy a car. If you are the kind of person who specially if you pay cash, but even if you get a car loan, pay it off and keep the car until it's splutters and dies. Kevin McCormally: Live those great days with no car payment. Mark Solheim: Exactly. Kevin McCornally: So who is at least they might think for. Mark Solheim: Leasing makes sense for people who like to trade in their car every three or four years and in other words they are always facing the car payment. Kevin McCormally: Leasing is really confusing world to a lot of people, they haven't lease before they used to buying. What do you have to know to be able to lease a car? Mark Solheim: One of the things I think that keeps in numbers of leasers down is that this is it's a crazy lingo but you look in at least three main terms that you should know. One is the capitalized cost and the lease is essentially the sticker price of the car. Another is the money factor which is leasing lingo for the interest rate you are going to pay which has to go through some crazy conversion. And the other is the residual value, that's the value of the car when you turn it in meaning you subtract that from the cost of the car, that's how much you are actually paying for the car over the time you lease it. Kevin McCormally: I have heard that leasing generally holds down the number of miles you can drive the car, it maybe 12,000 miles a year. If I drive 20,000 miles a year, is that mean I have to buy? Mark Solheim: Never, not at all, you can negotiate the number of miles you drive upfront. As you say it can be even as little as 10,000 miles a year for many luxury cars. But if you know you are a high mileage driver, negotiate that upfront because if you pay the penalty when you turn it in for the extra miles. It's going to be a lot more money. Kevin McCormally: One final question, how did you get a good deal on lease? Mark Solheim: To get a good deal on the lease you need to bargain as hard on the capitalized cost, that at the sticker price of the leased car as you would on a car that you buy. Another good thing is to asked the dealer to shop several leases to shop several banks because that could lower your money factor or it could raise your residual and both of those things will lower your monthly payments. Kevin McCormally: Great advice Mark, thank you.