Lease vs Buy? Which is Best Deal?

In the articles on this web site we often tell you about the best car deals in which attractive lease deals are being offered, along with low-interest loans, and rebates — frequently on the same vehicles at the same time.

Typically, you have to choose only one kind of deal. For example, you must take the special lease deal — or take the low-interest purchase loan — or take the purchase rebate. In other articles we have discussed low-interest (or 0% interest) loans versus rebates (see 0% APR Loans – Good Deal or Not?). In this article, we’ll discuss leasing versus buying a car.

We’ll keep this discussion simple and easy to understand but if you need more details we suggest you visit LeaseGuide.com.

Car leasing is not renting as many people mistakenly believe. It’s not at all like apartment leasing or renting. It’s a form of financing, just as a loan is a form of financing. In fact, a car lease actually is a loan. However, monthly payments are lower than with a loan because you are only paying for part of the cost of the car — the part that you’ll be “using up” in the three years of your lease. Then you repay the remainder of the lease “loan” by returning the car at lease-end (or buying it).

Lease payments are typically only 40%-60% of loan payments for the same car, same term. For people wanting to minimize their monthly expenses, leasing provides a good way to do it. However, at the end of three years (or whatever your lease term is), you must return the car and start all over again. Very rarely will a lease car have trade-in equity. So, for people who normally like a new car every three or four years, drive an average number of miles each year, take good care of their cars, have a stable life style, and don’t get hung up over the “ownership” issue, then leasing is a good way to go.

On the other hand, if you decide to buy rather than lease your car, you make higher monthly payments to pay for the entire cost of the car. Once the loan has been paid off, you have some trade-in equity (what value is left after depreciation has taken its toll), or you can drive the car payment-free for years to come. Because you can spread your cost over a longer period of time, you can save money in the long term. So, for people who don’t mind higher monthly payments, normally drive their cars for years, drive a lot of miles, want to modify their cars, and prefer to have a time when they are payment-free, then buying will be better than leasing.

So the answer to the leasing vs buying a car question really depends on the individual. The right answer for one person will be wrong for another. Many people have been leasing their cars successfully for years. Other people, who know little about leasing make the mistake of choosing leasing based on nothing more than the lower payments it offers. To make a correct lease vs buy decision requires an understanding of how leasing works and how to determine if it’s right for you. Again, we suggest you read “Lease vs Buy?” at LeaseGuide.com for more details.

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