This story is part of CNBC Make It’s One-Minute Money Hacks series, which provides easy, straightforward tips and tricks to help you understand your finances and take control of your money.
If you’re in the market for a new car, there are a lot of decisions to make: Hybrid or electric? Sedan or SUV? But most important, you need to decide if you want to buy or lease your vehicle.
There are many pros and cons to both, and the right decision for someone else might not make the most sense for you. Here are three things to take into account when determining if you should buy or lease.
First, figure out how much you can afford to spend each month. If you need the cheapest option available, monthly lease payments are generally more affordable than auto loan payments. That’s because you aren’t paying off the vehicle’s full purchase price.
The downside to this is that even though you are paying less, there’s no hope of recouping your money years down the road by reselling the car because it doesn’t belong to you. If you buy, on the other hand, once you resell the vehicle and get money back, you will likely have spent less money overall.
But if the smallest monthly payment is your main concern, leasing is likely the way to go.
Next, determine what you’ll be using the car for and how many miles you anticipate putting on its odometer. Leased cars come with mileage restrictions, often an average of 1,000 miles per month. Going over this amount could cost you surcharges that can be as much as 20 cents per extra mile.
If you plan on driving more than 250 miles per week — which would put you on pace to surpass 12,000 miles in a year — do the math with your potential lease terms to see if it will still save you money over buying.
Lastly, decide how important it is to you to drive the newest car. If you want to swap your car out every two or three years for the latest model, leasing is your best bet. But if you don’t mind driving the same car for six or eight years, it may make sense to buy.
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