Buying vs. Leasing a Car


Leasing a car might seem to be a much better deal than buying, and it is for many. Payments are lower, down payments are lower, maintenance is carried out by the dealership, and it will boost your credit rating. It isn't always the best way to go for everyone, though. Some downsides may make buying a better option than leasing for you. Be sure to ask these important questions when you go vehicle shopping. They will help you decide which purchase option is best for you.

1

What is the difference between leasing a car and buying a car?

When you lease a car, your monthly payment is based on the car's depreciation or decline in value. You are paying to use the car for the term of the lease. The dealership figures out how much the vehicle is likely to depreciate, or lose value, over the term of the lease, then divides that up into payments. At the end of the lease, you will have to give the car back or pay an amount equal to the depreciated value.

When you buy a car, you buy the car. You borrow money, pay the payments and the vehicle is yours after you finish paying back the loan.

2

Isn't there an extra charge if I put too many miles on a leased vehicle?

Yes. Within the lease agreement, there will be a set number of miles that you can put on the vehicle. If you go over that number, you pay extra. It is usually a certain amount per mile over the limit.

If you buy a car, of course, your bank isn't going to limit how many miles you can put on it.

This is an important factor to consider when trying to decide whether to lease or buy. If you tend to put a lot of miles on your vehicle, make sure you know how much more it will cost you in the end.

3

Can I lease a car if I have bad credit?

Maybe, maybe not. Some dealerships will lease a car to you if you have bad credit, but most require a good credit rating. If your credit score is less than 680, you may have a hard time getting approved and, you may have to pay a higher interest rate and larger down payment. A dealership will also be more likely to lease to you if you can get a cosigner with good credit. It is usually easier to get a car loan than a lease if you have bad credit.

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4

Are financing charges more for a lease or purchase?

You pay more in finance charges if you lease your new car than if you buy a car with a regular car loan. This is because you are paying lower payments, which are just being applied to the interest on the value of the car. The larger principal, or what you owe on the car, accrues higher monthly finance charges. Payments on a regular car loan are divided up between the principal and interest. The principal amount owed is paid down a little with each payment, so the finance charges also go down.

5

Is the duration of a lease usually about the same as financing?

Yes, the duration of a lease is commonly two to four years, which is about the length of time a bank will give you to pay off a vehicle loan.

6

Is it better to have a longer lease duration or shorter?

A shorter duration is better. The vehicle is more likely to retain a higher residual value. This means that you won't have to come up with a chunk of change to pay the difference between what you agreed to pay and the actual depreciated value of the vehicle. A 2- or 3-year lease is best.

7

Does leasing a car incur more fees than buying?

Extra fees are commonly incurred with a lease deal. There is often an initiation fee and a disposal fee that may add hundreds of dollars to the cost of leasing. If you decide to continue leasing a car when your current lease runs out, these fees are usually added on again. Some dealers do waive the fees, though, if you qualify for a lease loyalty program.

8

Can the price of a car be negotiated when leasing?

Yes, you can negotiate the price of the vehicle when leasing just like you would when buying. The MSRP, or Manufacturer's Suggested Retail Price, is only a suggestion. It is set a bit high because many people are going to negotiate a lower price. Don't be afraid to haggle. A good dealer will expect it.

9

Are any dealers offering really good lease deals at the moment?

You can almost always find dealers who are offering really good deals. Good lease deals are currently being offered on the 2017 Toyota Camry, Corolla and RAV4. Ford is offering some really good deals on 2017 Escape, Fusion, F-150 and Mustang. Honda is offering some great deals, too, on the 2017 Civic Sedan and Accord Sedan. Check locally as prices vary, depending on which region of the country you live in.

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