Buying a car is still a better value than leasing one

Smiling woman being handed car keys

Although leasing a new car has some benefits, traditional financing is a better option for the average consumer.

Yet, after declining in popularity following the 2008 financial meltdown, new-car leasing is on the rise, says credit data expert Experian Automotive.

During the first three months of 2012, nearly a quarter of all new cars driven off auto lots were leased.

Americans are more likely to lease a luxury car than an economy model, but more than half of all new-car loans done by the financing companies associated with Hyundai and Volkswagen are leases rather than traditional auto loans.

But just because a lot of people are doing it doesn't make it right for everyone.

We try to steer consumers away from buying a car based on what the monthly payment will be, but that's the key marketing tool of leasing.

Generally, you can get more car by leasing than through a traditional auto loan, and often with less out-of-pocket money up front.

It's also convenient for those of us who want a new car every two or three years or for early adopters of new technology who don't want to miss the next big thing.

In simple terms, you only pay for the value a car is projected to lose over the term of the lease.

Monthly lease payments are the projected depreciation divided by the number of months in the lease, as opposed to loan payments that are based on the full sales price of the car.

Leasing seems less expensive, and it often is, in the short run.

However, we believe in taking a longer view of our personal finances.

After all, at the end of the lease, you have nothing. At the end of the loan, you own the car.

Ron Montoya, the consumer advice editor at Edmunds.com, says leasing is not the way to go when money is the main consideration.

"If you are only looking at it from a financial point of view," Montoya says, "leasing is always more expensive than buying. The payments are just gone."

Leasing a car is just like renting a house: In some cases it makes more sense than buying, but in the end you have nothing to show for the money you've spent.

Because leased cars accrue no equity, most people move from one lease to another. They are trapped with a car payment forever.

Moreover, projected residual value is based on the car being in exceptionally good condition when turned in.

Excessive wear and tear, as well as excess mileage, can mean big-dollar penalties at the end of a lease.

Leases have an annual mileage cap that can be as low as 10,000 miles. A hefty per-mile penalty -- 10 to 20 cents -- will be charged for every mile above the contracted cap.

Such penalties can run into the hundreds, if not thousands, of dollars.

Likewise, you might find yourself being nickel-and-dimed for every nick, scratch and door ding.

These are not surprises most of us welcome or can afford.