Loan vs. Lease (© Consumer Reports)Click to enlarge picture

Many dealers promote low monthly payments for leasing but consumers need to be aware of all the fees that are buried in the small print.

It's up there with baseball vs. football and creamy vs. crunchy. Which is better: financing or leasing a new car? Leasing is often touted as the option that gives you "more car for less money." This month, the Consumer Reports Money Lab set out to test that premise.

The more car/less money argument resonates with a lot of car shoppers. Leasing accounted for nearly 27 percent of all new vehicle acquisitions in 2007, according to CNW Marketing Research. Part of what's making the option more tempting: The average monthly lease payment has dropped 44 percent in the past five years. In the auto section of the newspaper, dealers promote low monthly payments in large type. Buried in the small print, however, are all the fees that can boost your overall cost.

TOOLS OF THE TRADE
Numerous online tools are available to help you make the buy-or-lease decision. You can find questionnaires and calculators on the Web sites of auto dealers, financial institutions, and other parties. The questionnaires or "recommenders" usually consist of six to eight questions about your finances, driving habits, and preferences. Your answers are evaluated, and a lease-or-buy recommendation spews forth.

With a calculator, you'll typically type in such variables as the cost of the car, your down payment, the term of the lease or loan, and other numbers that will get crunched to determine which deal will be the most financially advantageous for you.

Unfortunately, the calculators often don't ask for important data such as acquisition fees, insurance costs, "drive-off" fees, and any up-front state sales taxes. And even if they took those costs into account, you might not have them at hand. Some calculators will estimate them for you, but one of the most important values in the equation, the car's residual value at the end of the lease, can vary considerably from one leasing company to the next.

The questionnaires and calculators have their place. Indeed, this site offers a number of financial calculators in the Cars section. However imprecise, a calculator will at least let you know if you're in the right ballpark to lease or buy the model you have in mind. Of course, there is also a subjective factor to driving — an activity that occupies the average American for 15 hours a week — and even the most sophisticated calculator won't be able to measure just how much it's worth to you to be in the vehicle you want for those 15 hours.

THE COLD, HARD FACTS
We won't keep you in suspense: The Money Lab determined that buying a car — in this case, the best-selling 2008 Honda Accord EX, at $24,495 — would cost $4,597 less over five years than closed-end leasing for exactly the same model.

We compared the two most common arrangements: a three-year lease and a five-year loan, and analyzed total costs after each year over five years. Since the lease is up after only three, we assumed that the lessor took out a new lease-same terms, same vehicle, only newer-in the fourth year.