Is it better to lease or finance a car right now?

Question

Our lease is up, and we are deciding if the next car we get should be a finance or another lease. Thoughts?

Answer 1

Leasing can be good for the right people.

Essentially, in a lease, you never "own" the car. You make payments for 2-3 years, then hand the car back. Think about it almost like a long-term rental.

There are some advantages to leasing under the right circumstances.

First, if you trade out of cars every 2-3 years, it might be right for you. In a lease, you have a contract for a fixed amount of time. I discourage leasing past 3yrs - 2 is better. In a 'loan', after 2 yrs, if you try to trade you will probably be upside down, and owe more than the car is worth. So, in order to get out of it, you have to have a lot of cash, or finance that negative on the next car.

The contract will tell you that your payments are $x per month plus tax. At the end of the term, you will have a residual value for the car. The lease company basically says "In three years, we feel this car will be worth $Y" You have the option to buy the car at the end of the lease for that amount. If you are in love with the car, or it is worth well above the residual, you may want to consider that. However, in most cases, you simply hand over the keys and walk away.

In a lease, there is a specified amount of mileage. Most leases are constructed around 12K or 15K miles per year. If you go over the mileage, there will be a per-mile penalty at the end of the lease. So, if you drive a lot, it may not be for you.

Leasing typically allows a person to get a nicer car for the same payment as a lower-end car on a loan. that is because of that residual. You are only "financing" the difference between sales price and residual. In a loan, you are financing the entire purchase price.

In other words, if a car has a sale price of $25,000. on a three year lease, lets say the residual is $12,500. You are only "financing" $12,500 for 3 yrs. If you were to buy that same car, you would finance $25,000 either for a longer term, or a much higher 36 month payment.

Lastly, in a lease you pay less sales tax. In a conventional purchase on that $25k car, you pay tax on the whole 25,000. In a lease, you pay sales tax on the monthly payment. In other words, your payment of $300/month is actually $300+sales tax. BUT you are only paying tax on the leased amount - in the earlier example you are only paying sales tax on $12,500.

Times leasing is good: You trade cars ever few years, you dont drive more than 12-15k per year, you want to put less down

Times it is bad: You like to keep cars a long time, you drive a lot, you want to put a lot of cash down.

For all the times you hear horror stories about leases, I can show you 20x the stories on purchase.  Look at this forum.  Scan 100 posts, and look at how many people "purchased" a car on credit, want to trade out after 2-3 yrs, and are so buried that its impossible.  

Hope that helped some

Answer 2

Satan had a informative answer.. to add a little bit, long as you don't go over mileage, leasing is good option now. My friend has a loaded durango leased with 9 more payments. If he would have purchased he would be in the ditch approx.  9k right now.  Nine months more it may be upto 14k upside down. He will just walk away.

If he would have purchased, in 72 months you generally now own a car that maintence could run you 400 for tires, 250 for brakes and maybe 750 for a timing belt. Other stuff may need maintained as well. That is 1400 dollars on a 6 year old that normally has 90k miles on it. You may be putting 1400 into a car only worth a 1000 than. Not a smart move. Plus, if they come through with new technology in 6 years ( better hybrids, electric, hydrogen, etc.)  ALL the old cars values will start to tank like the trucks and suv's are doing now.

Generally you spend $10 per 1000 on a lease and $20 per 1000 on a purchase. If you take a 20,000 car and say the bank wants 2000 down wheter you lease or purchase. 36 month lease will run you  9200. Now say lease goes up 10%, next 3 years you in nother new car and it would run you 9920 for total of 19120.  Purchase would cost you 30800for 6 years 400 x 72 + 2000 down payment..  Difference is 11680 in this case.  Many times lease includes maintenence. You pay on own you purchase. And for the last time, a purchased car is not " owned " by you until the last payment is made and they send you the title.

Leasing not for everyone, but starting to look better currently.

Good Luck!

Answer 3

Lease is just a long term rent.  You do NOT own a leased vehicle yet you are full responsible for it.

You are also bound by the contract and you cannot sell it (nor return it early without paying off the whole lease amount up front).  Most people never go back to leasing after first time.

Many people ask (here) about lease like this

(1) I got married and I don't need this leased car

(2) I got divorced and I can't afford this leased car

(3) I got fired and I can't afford this leased car

(4) I'm moving and I can't come back to return it when the lease it up.

(5) etc.

In all cases, you (the lessee) is stuck with the car.

===

(1)  Buy the car (finance it or just pay for it all at once.)

(2) maintain it well

(3) hold it for a decade or longer and squeeze every penny's worth.

That's how you save money on your car budget.

Good Luck...

Answer 4

I never understood leasing. I mean you pay a down payment, make monthly payments but when it's all over you're left without a car. You might as well have used that money to finance a car and you could keep it or use it towards a new car later on in life. I suggest you finance.

Answer 5

I would finance a car for two reasons

1) Leases are just not smart moves

2) Most dealers are practically giving their cars away at low prices because they are not selling. You can negotiate a very good price on almost any car right now.

Answer 6

check with a few car rental companies about renting by the month. it just might work out for you. No long term contracts ever. and you get to change cars if one goes kaput.

Answer 7

Since you are already leasing, and I assume it's worked out well for you, then you clearly qualify and are a good candidate for leasing again.

I would say the two factors or questions you should ask yourself are: 1) Are the lower payments of a lease really important, given that you'll never establish any owership or trade equity, but that you'll be driving a brand new car every few years, and 2) Is lower long-term cost more important given that you like to drive your cars for many years even though the payments are higher in the first few years as you pay off a loan?

I like leasing and have been doing for most of my personal and family cars for over 20 years. It works well for me. I like having a new car often, with all the new whistle and bells, latest safety equipment, and the fact that the car is always under warranty during my leases. To me, it's worth the higher long-term cost. And I've never paid a dime in lease-end wear-and-tear charges, and only about $90 in excess mileage charges. But leasing is NOT for everyone.

Answer 8

Unless it's a business write-off, leases are not good deals in general.

Answer 9

Better to lease than purchase nowdays, Why pay for something you'll never use. 36-48 month is the way to go these days.