Should you buy or lease that new car?
By: manybanking.com Staff

By manybanking.com Staff

If you're thinking about getting a new car, the first decision is whether to lease or buy.

The car industry is on the ropes -- Ford (F) and GM (GM) recently asked Congress about billion-dollar bailouts, and Toyota (TM) and Honda (HMC) have cut production to save money. Car dealers are getting desperate and it's a buyer's market. But before forking over your cash, you should consider whether leasing or buying makes the most financial sense.

To run the numbers for both options, check out manybanking.com's Buy versus Lease calculator. Enter relevant information into the calculator, including sticker price, interest rates, down payments, and length of the potential lease and loan.

Say, for example, your new car costs $20,000, and you're choosing between a 36-month loan at 0% financing and a 36-month lease with an annual interest rate of 6%, both with a $1,000 down payment. The loan carries no extra fees, but the lease involves a $500 security deposit and $100 in fees. If the car depreciates at around 15% per year -- most cars average between 10% and 20% -- it will have 55% of its original value at the end of the lease. Under these conditions, your lease payments would be $313 a month and your loan payments would be $556.

Though it appears to be a done deal in favor of leasing, it's more complicated than that. In a lease, you pay for the drop in value of your car from the time you bought it to when you hand it back over to the dealer at the end of the lease. That means you'll have paid $11,278 over three years, at the end of which you'll be left without a car. When you buy a car, it's yours. At the end of three years, you'll have paid $20,000 and you'll own a car worth around $12,300.

With the help of the online calculator, you can take some of the guesswork out of your decision.

For more rate offers in your area, check out and enter your ZIP code to find out the best info for your area.

—For more ways to save, spend, invest and borrow, visit MainStreet.com.

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