Money Talks News: Buy or Lease a Car

It's easy to understand why so many people lease: lower payments, new car every three years, turn it in when you're done. But what's better for your bottom line: Buying or Leasing?

Figuring out which will cost more is pretty straightforward. You just add up the payments.

For example, say I'm looking at a $30,000 car.

If I buy it with a three year, 3 percent loan, an online calculator tells me my payments will be $872 a month.

Times 36 months, that's $31,392. But if I sell it after three years, I'll recoup 60 percent, or $18,000. So my out of pocket will be $13,392 - let's call it $13,000.

Next: Leasing. Same $30,000 car: The dealer tells me with $1,000 down, a three year lease will be $500 a month, or $18,000 over three years. Total cost? $1,000 down, $18,000 in payments: $19,000. So leasing will cost me $19,000, buying, $13,000. Buying's cheaper.

Now, if you can't afford to $900 a month for a car, the math doesn't matter: You may have to lease, at least if you want a new car. But if you're going to lease, forget the payments. Instead, focus on the big three:

Number 1, capitalized cost: that's what you're paying for the car. It's the single most important thing. Next, the money factor: that's the interest rate you're paying. Finally, the residual value: the value of the car at the end of the lease.

Bottom line| buying is often the better deal. But if you're going to lease, forget payments: negotiate the cost and interest rate: let the payment take care of itself.