Lease vs. Buy

To truly determine which of these purchasing options best fit your lifestyle and financial situation, you should first make sure that you understand the benefits and drawbacks of each.

Buying and Leasing are different

In a buying scenario, you end up paying for the entire cost of the vehicle. This is the case no matter how long or how many miles you have driven it. At the start of ownership, you normally negotiate the sale price of a vehicle, make a down payment, and agree to an interest rate that is determined by your specific credit score and the lender. You then have to pay sales tax, and licensing fees. You make the monthly payment for the length of the loan, and at the end you own the vehicle. You can then trade it in for another car, sell it to someone else for its value at the time, or continue to drive it without having to make payments.

When you lease a vehicle you only pay for a portion of the vehicle’s cost. This means that you only pay for the amount of the vehicle that you “use” for the life of the lease. In this scenario you are only required to pay sales tax on the amount of your monthly payments (as opposed to the whole cost of the vehicle). Leases tend to have much lower monthly payments, sometimes as much as 30-60% less. In a lease you pay what as known as money factor that is similar to the interest on a loan. The money factor is a number that calculates the interest expense associated with the lease. You can compare the money factor to a normal interest rate by multiplying the money factor by 2400. There are also requirements and limitations to ensure the resale value at the end of the lease. Some of these will include mileage amounts. Another difference in leasing is that after the term of the lease, you can either just “walk away” or purchase the vehicle for a depreciated amount that was agreed to at the start of the lease.

Which is best for you?

LEASE - If you like getting a new car every two or three years, want lower monthly payments, like having a car that has the latest features, and is always under warranty, leasing might be the best choice. Also, if you don’t like trading-in or selling your old vehicles, you drive an average number of miles, and take good care of your vehicles then you should lease.

BUY - If you don’t mind higher payments if it means you are working towards ownership, like paying off a loan and driving payment free, and don’t mind the unexpected cost of repairs after the warranty has expired then buying might be for you. If you drive more than the average amount of miles, expect a lifestyle change in the near future, or prefer to customize the your car then you should buy.