Buy vs Lease

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Calculate Monthly Payments To lease, or to buy, that is the question.

So, what’s the answer?

In short – it depends. The benefits and drawbacks are different for each particular situation. One finances the use of a vehicle; the other, the purchase of one. So what you would want to consider is not only the financial comparisons, but also your own set of personal priorities.

Are you a new car every few years kind of girl or guy? How many miles do you typically drive per year? Are future savings more important than lower payments? Do you treat your car like royalty or a rugby teammate? How important is equity to you?

So… lease or buy? Still not sure? Let’s take a look at some points of consideration.

The Differences

When you buy, you buy the entire vehicle; it’s yours. Buying usually includes a down payment, sales taxes and an interest rate determined by your loan company based on credit. Your first payment comes a month later and should you ever tire of the car, you can sell or trade the vehicle for its depreciated resale value.

When you lease, you’re not buying the vehicle, but paying a portion of its cost; the part that you "use up" during the time you’re driving it. But don’t get this confused with renting; it’s not. Leasing usually includes an optional down payment, sales tax bundled into your monthly payments and something called money factor that’s similar to interest on a loan. Other fees may be included. Your first payment is due at signing for the month ahead. But when your lease is up you have the choice of buying it for the depreciated resale value or just handing over the keys and getting another car.

For Example…

If you lease a $20,000 car that will have, say, an estimated resale value of $13,000 after 24 months, you only pay for the $7000 difference (this is called depreciation), plus any finance charges and possible fees.

When you buy, you pay the entire $20,000, plus finance charges and possible fees.

This is fundamentally why leasing offers significantly lower monthly payments than buying.

So… Which is Better?

Again, in short – it depends. There’s pros and there’s cons. There’s advantages, there’s disadvantages.

Let’s try and break it down for you.

Pro Lease; Con Buy

  • Lower payments
  • Lower up-front costs
  • Sales tax based on low monthly payments, not complete sum
  • Hassle-free disposition – when the lease is up, just hand over the keys

Pro Buy; Con Lease

  • Early termination is ok – no penalties, no costs
  • Possibly lower insurance
  • Lower credit requirements – the car’s yours, not a leasing company’s
  • No mileage limits
  • You own it – you don’t own a leased car

When all is said and done

LEASE – If you enjoy driving a new car every two or three years, want lower monthly payments, like having a car that has the latest safety features and is always under warranty, don’t like trading and selling used cars, don’t care about building ownership equity, have a stable predictable lifestyle, drive an average number of miles, properly maintain your cars, are willing to pay more over the long haul to get these benefits, and understand how leasing works, then you should lease.

BUY – If you don’t mind higher monthly payments, prefer to build up some trade-in or resale value (equity), like the idea of having ownership of your car, prefer paying off your loan and being payment-free for a while, don’t mind the unexpected cost of repairs after warranty has expired, drive more than average miles, prefer to drive your cars for years to spread out the cost, like to customize your cars, expect lifestyle changes in the near future, and don’t like the risk of possible lease-end charges — then you should buy.