Leasing is actually more expensive than buying a vehicle in the long run. But if your credit is good enough to qualify for car leasing, your monthly payment may end up being lower when leasing rather than buying. Let us explain.
The Dollars and Sense of Leasing
Okay, so you might be wondering how leasing can be more expensive in the long run compared to buying, since we already let you know that your monthly payment is bound to be lower. It comes down to ownership. In leasing, you only pay for the portion of the vehicle you use. This means that after two or three years (the most common lease terms), any value in the car belongs to the leasing company.
At the end of your lease term, you can choose to purchase the vehicle, or you can lease again. Since we're comparing leasing to buying, let's assume you choose to lease another car. You start the process again, presumably for the next three years. After six years of payments, you still don't own a vehicle, and are at the point where you must choose again – buy the car at lease end, or lease again.
But how have you fared financially? Let's say, for example, that you lease a $25,000 sedan. Because part of your lease payment is based on depreciation, we can estimate the vehicle to be worth half that when you turn it in ($12,500). If you put down $1,000 at signing and leased for three years with a money factor of .0018 (equivalent to an interest rate of 4.32 percent), you're looking at a monthly payment of around $385 (because taxes vary by state, our calculations are estimated without sales tax).
However, in our example, you're doing this all over again after the initial three-year period. Let's assume you take out the exact same lease for another three years, giving us a total of six years, or 72 months. Paying $385 a month for 72 months, plus $2,000 down ($1,000 on each lease), means that you made payments totaling $29,720 over six years with nothing to show for it in terms of ownership.
How Buying a Car is Less Expensive
On the other hand, let's take a look at our example if you're financing the vehicle with an auto loan. If you took out a car loan with the same terms ($25,000 loan, 4.32 percent interest rate, $2,000 down payment, 72-month term), your monthly loan payment would be just over $363. In total, you end up paying $26,150 over the 72 months, and you also own the vehicle once the term is up.
Comparing Leasing to Buying
Now, I know what you're thinking. Sure, you end up paying less across six years when you buy as opposed to leasing two cars back to back, but you're stuck driving a six-year-old vehicle. If you were leasing, you'd be driving around in a new car that's covered by a manufacturer warranty for the entire term every three years or so. Isn't that better? Well, that's apples and oranges.
This is where leasing and buying a vehicle becomes a debate, there's no right answer to the question and it's really up to you as to whether one is a better deal than the other. If you buy a car that retains its value, has great reliability and safety ratings, and the latest technology and safety features for its time, it could still be somewhat comparable to that three-year-old vehicle you lease. Only your car needs, driving habits, and budget can determine if leasing or buying is better for you at this point.
Finding the Right Money Saving Situation for You
If you truly want to save the most money you can when getting a vehicle, buy used – and drive it until the wheels fall off. If you're struggling with credit issues, or your credit doesn't allow you to qualify for a car lease, this can be your best bet when it comes to saving money on a vehicle. However, buying used isn't for everyone, and you have to get a reliable car that's right for you.
Whether you decide to lease new, buy new, or buy used, you need to make sure that you're getting the right deal for your situation from the right dealer. If you don't know where to start your process, we can help with that.
Here at Auto Credit Express, we have over 20 years of experience matching consumers with dealerships that know how to handle, and have the lenders available to take on, many different credit situations. Let us help you take the hassle out of finding your next vehicle. Simply fill out our online auto loan request form, and we'll get to work for you!