How to decide the question, "Lease vs buy a car"? We'll help you decide this right now, and if you decide to lease, we'll give you tools so you never regret your choice.
Before you make a decision regarding lease vs buy a car, you should understand how leasing works, how much you'll pay every month, where that payment number comes from and what pitfalls you could encounter.
1. How leasing works
When you lease a car, you aren't paying for what it's actually worth. You only pay for its projected loss in value while you're leasing it. Over three years, for example, a $30,000 car might lose half its value. Paying back only half a car's value, instead of the full sticker price like you'd have to if you bought the car, leaves you with a smaller monthly payment. Instead of paying $30,000 over three, four or five years (which would be $833, 625 or 500, plus interest per month), you'll only pay $15,000 over that same period ($417, $313 or $250, plus whatever fees you're responsible for). Compare:
Purchase rate Lease rate
$831 $471
$625 $313
$500 $250
Leasing became popular because of this lower monthly payment. It was a case of more car for the same payment, or the same car for a significantly lower monthly payment. A
But as leases became more popular, car dealers found ways to turn this into increased profits. Spread over the life of the lease, the fees they came up with were easy to hide. A $500 charge spread over four years, for example, would only add $10 to the monthly payments-easy to overlook. But as more and more fees were added, a good deal often became something less.
2. The pro's and cons of leasing
Should I buy or lease my next vehicle?
The Cost To Lease
As we showed you before, monthly lease payments are usually lower than monthly finance payments because you're only paying for the vehicle's depreciation during the lease term, plus rent charges and other fees, instead of paying for the entire purchase price of the vehicle, plus interest, taxes and other finance charges. Car dealers are constantly maneuvering to get as much money from you as possible, so the more you know, the less they'll get.
To get the best deal on a lease, make sure you understand what every one of these charges is. Monthly lease payments consist of five items: vehicle depreciation (the difference between (1) the original agreed-upon value of the vehicle minus any capitalized cost reduction and (2) the residual value of the vehicle at lease-end); payment of any other amounts included in the gross capitalized cost (service contracts, insurance, or outstanding prior credit or lease balance); rent charge for the lessor; sales tax; and any other fees the dealer is able to add.
In most states, the sales or use tax included in the lease payment replaces the sales tax you'd pay if you bought the vehicle. So you can see that you must weight out lease vs buy car and determine which path is best for you.
