Buying vs. Leasing?
Driver
Joined: May 2002
Posts: 180
Likes: 0
From: Dallas, TX
If you plan on keeping the car for 3 or 4 years, then leasing is the way to go. Otherwise, buy it. With leasing, you don't really have any responsibility at the end. If you wreck the car, your resale value drops like a rock. If you lease the car, the bank takes the hit, not you. Remember, just as with purchasing or financing, the leasing terms are also negotiable so don't just take their first offer.
Lead Lap
Joined: Sep 2003
Posts: 776
Likes: 3
From: Illinois
Advantages of leasing:
- Lower monthly payment
- If the car is used for business purposes, a lease is easier to track and deduct on tax returns
- The leasing finance rate or "money factor" is usually more attractive than the APR on a loan used to purchase the car. (To convert a money factor to APR, multiply it by 24, regardless of the length of the lease.) It's used as an incentive to get you to buy the car.
- You have no obligation to the car at the end of the lease, provided it's in good condition and you didn't exceed the mileage limits in the lease.
- If the estimated residual value in your lease ends up being higher than the market value of the car at the end of the lease, then that's the dealer's problem, not yours. (This rarely happens, though, unless something bad happens to the car like a major accident.)
Advantages of buying:
- You are always free to pay off the loan or sell the car at any time. Although you may be making payments, you're in control of when you sell it and get out from under the loan if needed.
- You own something tangible at the end of the loan that has value.
- No mileage limits.
- You can modify parts as you see fit without worrying about some sort of penalty later.
A car lease is a lot like renting an apartment - you don't own it, you just make payments for your use of it. The reason a lease payment is lower than a purchase loan is because a lease is based on the amount of depreciation you'll experience during the term of the lease. Your payment will be roughly based on (value at start - value at end) / number of months. Of course, you have to add interest and taxes to each payment.
What's interesting is that if you do the math, the difference between your monthly payment on a lease and the monthly payment on a loan, that difference often adds up to the actual cash value of the car at the end of the lease. So while you're paying extra every month on a loan, you'll own a car worth that much extra at what would be the end of the lease term.
There's no advantage to leasing and planning to buy at the end of the lease. If you've got an attractive "price at end of lease" (also called "residual value"), then you've been overpaying on your lease payments all that time. Ideally, the residual value in the lease equals what the car will really be worth at that time. Lexus likes 59% of MSRP in 36 months, but the RX has been shown to be worth more than that (like 65%, or possibly 70%) at that time. The lower the residual value, the higher your lease payments!
So it's really up to you and how your financial situation works out. Many people are attracted to leasing so that they can drive more car for a given monthly payment. But as Seadee456 said, be sure you negotiate the price, money factor, and residual value - don't just shop for a payment!
- Lower monthly payment
- If the car is used for business purposes, a lease is easier to track and deduct on tax returns
- The leasing finance rate or "money factor" is usually more attractive than the APR on a loan used to purchase the car. (To convert a money factor to APR, multiply it by 24, regardless of the length of the lease.) It's used as an incentive to get you to buy the car.
- You have no obligation to the car at the end of the lease, provided it's in good condition and you didn't exceed the mileage limits in the lease.
- If the estimated residual value in your lease ends up being higher than the market value of the car at the end of the lease, then that's the dealer's problem, not yours. (This rarely happens, though, unless something bad happens to the car like a major accident.)
Advantages of buying:
- You are always free to pay off the loan or sell the car at any time. Although you may be making payments, you're in control of when you sell it and get out from under the loan if needed.
- You own something tangible at the end of the loan that has value.
- No mileage limits.
- You can modify parts as you see fit without worrying about some sort of penalty later.
A car lease is a lot like renting an apartment - you don't own it, you just make payments for your use of it. The reason a lease payment is lower than a purchase loan is because a lease is based on the amount of depreciation you'll experience during the term of the lease. Your payment will be roughly based on (value at start - value at end) / number of months. Of course, you have to add interest and taxes to each payment.
What's interesting is that if you do the math, the difference between your monthly payment on a lease and the monthly payment on a loan, that difference often adds up to the actual cash value of the car at the end of the lease. So while you're paying extra every month on a loan, you'll own a car worth that much extra at what would be the end of the lease term.
There's no advantage to leasing and planning to buy at the end of the lease. If you've got an attractive "price at end of lease" (also called "residual value"), then you've been overpaying on your lease payments all that time. Ideally, the residual value in the lease equals what the car will really be worth at that time. Lexus likes 59% of MSRP in 36 months, but the RX has been shown to be worth more than that (like 65%, or possibly 70%) at that time. The lower the residual value, the higher your lease payments!
So it's really up to you and how your financial situation works out. Many people are attracted to leasing so that they can drive more car for a given monthly payment. But as Seadee456 said, be sure you negotiate the price, money factor, and residual value - don't just shop for a payment!
Driver
Joined: Jun 2006
Posts: 103
Likes: 0
From: CA
I look more at the lease as being a "trial" period. You are renting the vehicle for a short amount of time, and can buy it outright at any time (even the month after your lease starts). The nice thing with a lease is you are only paying for the part of the car you are using - so it can be cheaper. There are restrictions to the lease, so if you want to customize the car you need to plan to buy out the lease or just purchase the car right up front. I've been leasing for over 12 years now - and only 1 lease made it to the end (a 24 month lease). I usually get bored with a car and just trade it in on the next vehicle. During the paperwork I actually buy the lease car and trade it in - really only owning the car for a few moments.
Always negotiate - leasing or buying!! Don't think a lease is fixed.
James
Always negotiate - leasing or buying!! Don't think a lease is fixed.
James
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