Jul 26, 2010

Should You Lease or Buy Your Car?

When you lease a car, you are paying rent for it--a set fee each month for the use of the car. At the end of the lease term, you give the car back to the leasing company and own nothing. As a general rule, leasing a car instead of buying it makes economic sense only if you absolutely must have a new car every two or three years and drive no more than 12,000 to 15,000 miles per year. If you drive more than 15,000 miles a year, leasing becomes an economic disaster because it penalizes you for higher mileage.

There are numerous financial calculators available on the Internet that can help you determine how much it will cost to lease a car compared to buying one. Be careful when you use these calculators--they are designed based on certain assumptions, and different calculators can give different answers. For a detailed consumer guide to auto leasing created by the Federal ­Reserve Board, go to the Board's website at www.federalreserve.gov/pubs/leasing.

For more information on deducting car and local travel expenses, see Deduct It! Lower Your Small Business Taxes, by Stephen Fishman (Nolo).