Buying or leasing a new car can be both exciting and frightening—you are looking forward to driving a brand new car, but you want to make sure you get the best deal possible. The information in this section can help guide you through the process of buying or leasing a new car.

Buying means that you are purchasing the vehicle outright. The advantages of buying include that you are protected against losing your vehicle in case of job loss or change of employment if you pay cash for the vehicle. If you buy, you can drive unlimited miles each year, and if you pay cash for the vehicle, you have no monthly payments. The vehicle can be used for any purpose, and you can modify the vehicle as you like (e.g., changing the color, rims, or tires).

The main disadvantage of buying is that there are higher up-front costs. Buying is also expensive if you want to have a new car every few years.

The advantages of leasing include that the payments are usually lower because you pay for only a portion of the car you are using. When you lease, you pay a depreciation fee and sales tax on a monthly basis instead of making a payment on the total cost of the vehicle. Because of this advantage, leasing can be economical if you want to have a new car every two or three years.

The disadvantages of leasing are many. When you lease, you do not have the flexibilityto move to another location because of mileage limits, so if you are attending a university or living somewhere temporarily, leasing is probably not a good idea. At the end of your contract, you do not own the car, so your car is not an asset. There are many extra fees for leasing, such as acquisition and termination fees. There is also a fixed mileage allotment, and you are required to pay a penalty charge for every mile you drive over your predetermined mileage allotment. Another disadvantage of leasing is that, because leases are generally short-term, dealerships make a lot of money by leasing buyers new cars every few years. Their profits are often hidden because of the complexity of leasing, especially for those who do not understand the process.Finally, there are other risks with leasing. If you opt for a longer lease than the car warranty, should any problems occur with the vehicle, you will be required to fix these problems before you can return the vehicle.

Be sure to find a closed-end lease and not an open-end lease. With a closed-end lease, you simply pay the monthly payments and various fees and then return the car when the lease is over. If you have an open-end lease, and the dealer is not able to sell the car for what he or she originally estimated, then you must pay the difference. Open-end leases are generally not a good idea due to the risks involved.

Before you buy or lease, there are five general guidelines you should know about the buying and leasing process: