Should you buy or lease your next car?

Car leasing remains a popular option for Americans, but for most people, it doesn't make much financial sense.

Consider a hypothetical car with a sticker price of $27,000. If you buy with $1,000 down, and finance it over three years at today's average rate (per Bankrate.com) of 5.7%, your payments will be about $780 per month. After three years, you'll have paid a total of about $29,350 and own a car that should be -- if it's depreciated by 50% -- still worth about $14,000. Net cost if you choose to sell: $15,350.

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Compare that to the cost of a typical lease: Let's say you put the same $1,000 down, then lease it for the same three years. According to this calculator at Edmunds.com, if your car has the same $14,000 residual value and the same interest rate (known as the "money factor" in lease lingo) you'll pay $567 per month. Three years later, your final cost will be $20,412 -- about $5,000 more -- and you'll be car shopping again.

Check out the following news story that addresses the lease vs. own question, then meet me on the other side for more.

But what about the "advantages" of leasing?

"OK," someone might say, "but what about the perks of leasing?" Answer: What perks? Let's look at what buyers get.

• The privilege of being sleek or being a slob. If the car is yours, you can do what you want with it. That means you can customize it to your heart's (and wallet's) content -- custom paint, rims, tinting, a trendy spoiler, an amped-up sound system, whatever. It also means it's OK to eat fast food inside and it won't matter if you spill a little ketchup or soda. You can smoke inside if you want. You can leave it messy and not wash it for months. Of course, all this might affect resale value, so I'm not saying you should -- just that you can. Remember, a leased car is essentially a rental car.
• You can go anywhere. According to Edmunds.com, leasers usually face annual limits of between 12,000 and 15,000 miles per year, with expensive per-mile penalties for going over. Owners can go on long, impromptu road trips without worry. They can also drive to Mexico or Canada without having to get anyone else's permission, something you often can't do with a leased car.
• You own something of value. The biggest and most obvious benefit of ownership is: It's yours. Once you pay it off, your only costs are fuel and maintenance. You can drive it until it has to be towed to the junkyard, or you can sell it to somebody else while it still has a high resale value. 
• You can get out if you have to. You're suddenly offered a great job in Tokyo. What will you do with your car? If you own it, you can sell it. Granted, you may take a bath, especially if you just bought it. But at least there's an exit. With a lease, your only out -- other than simply making all of your payments in full -- is finding someone to take it over. (See "How to get out of a car lease.")

In short, when you lease, you're swapping lower monthly payments for restrictions and additional potential problems.

So, why does anyone lease a car? You probably figured that one out when you read the example above: It's not easy to cough up $800 every month for car payments.

• How do your finances stack up?

To put it bluntly, most people who lease are paying lower monthly payments so they can drive a car they otherwise could not afford. And if they aren't setting money aside, and also insist on a new car every three years, they're going to get stuck in a leasing cycle because their budget and lifestyle won't allow them to afford to buy one.

• Try the 50-30-20 budget

Is there anyone for whom leasing really makes sense? Sure. There are situations where it might:

• You can't afford a newer car, but need one because your job entails driving clients around. Think real estate agent. (Although they may run into mileage-limit issues.)
• You really don't feel safe in anything less than a late-model car, you don't have the cash, and you can't afford the payments to buy one.
• The lease is subsidized by the manufacturer or dealer to the extent that it's actually cheaper than buying with borrowed money. You can use a lease vs. purchase calculator to find out, or better yet, do the math I did above. Simply add the total lease vs. loan payments and see what you come up with. If you need a calculator to see what the payments are to buy, here's one from MSN.
• You take over a discounted lease from someone who can no longer afford it on a site like LeaseTrader.com.

The best solution

I'm 55 years old and I've never bought, or leased, a new car in my life.  The car I drive today is a 2000 Mercedes S430. It costs about $80,000 new. I bought it several years ago with 75,000 miles on it for about $20,000 cash. I've put about 50,000 miles on it since then, and somebody recently offered me $12,000 for it.

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I take care of my car and, thus far, it's taken care of me. It's a much nicer, safer and more luxurious car than those of most of my friends, which is odd because nearly all of them paid more for their cars -- a lot more -- than I did. That's because they bought or leased them new.

The person who bought my car new essentially paid $60,000 to drive 75,000 miles -- a lot more if they leased or financed it. I've paid about $8,000 to drive 50,000 miles.

What more do I need to say?

More from Money Talks News and MSN Money:

• The best time to buy a car
• 3 ways women can drive a hard bargain
• How to get the best deal new or used
• 7 ways to overpay for car insurance
• Which is better: Renting or buying a home?
• Is premium gas worth the premium price?