What is the difference between Lease vs buying a car?

Question

Does lease also involve interest? Can someone explain in detail & easy manner. I'd appreciate it!! Thanks.

Answer 1

Leasing is long term renting.  It is NOT buying.  YOu do not own it. You can not sell it. You can not trade it in.  You are basically stuck in CONTRACT.  Because you are still under contract with dealer / lease company, any violation will cost you (a lot).

The way it is SUPPOSE to work is that they take current cost, projected resale value at the end of the lease (because the lease company have to sell it later), then subtract the two to get the USE cost.  Then you take out a loan for that amount (sort of).

but because it is so complicated, there's tremendous room for "cheating" (or scamming) from the lease company.

Also as soon as the lease is up, you no longer have a car, and have to get into another lease or buy the car (or another car).

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I own 2000 Audi A4 and 94 Civic.  Both paid off (long time ago).  I don't worry about monthly payment.  I don't continue to make monthly payment FOREVER like in a lease.

Good Luck...

Answer 2

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.

If you purchase a car on a conventional 'buy' contract, but trade it off before you are done paying for it, you never *owned* that car either. If you routingely trade out of cars every 2-3 yrs, you never *own* them at all. You are just moving from one monthly payment to another.

Dealers make no more on a lease than they do on a purchase. The cap cost of the car is the same as the 'buy' price. A lease customer has no need to buy extended warranties or any other extras - in fact lease companie usually don't allow for them. So we typically make LESS on a lease than a 'buy'. The residual is set by the bank, not us. When the car is handed in at the end of the lease, the dealer is just an agetn for the bank. We don't stand to gain anything on the residual, except hoping you buy another car in teh process.

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.

To those who say "never lease" -- read this forum for 30 mintues. For every lease 'horror story' you read, you will see 20 people who are upside down on a 6 yr purchase and no way out. The key is to be thoroughly informed about the pros and cons of both, and make an educated decision based on your needs and lifestyle.

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.

Hope that helped some

Answer 3

lease is like renting

you never really own it

you may be able to buy it then your lease is up...

----------- but it 'll stil cost you alot !-----------

Answer 4

A lease is a VERY long term RENTAL.

It is the difference between renting an apartment and buying a condo...

You get equity with a condo while with the apartment, you are paying someone else to 'use' the space.

Same diff...  

Answer 5

when you lease, you rent it and you pay in 4 years like half of the cost of the car or a bit less and at the end of the 4 years, you don't have it.

When you buy your payment might be a bit higher but in 4 years, the car is yours.

Answer 6

When you lease a car, you are not purchasing it. It's kind of like borrowing a car for a long period of time and paying for it. When buying a car, if you pay cash, then all you have to worry about is taxes on it, but if financing, there will be an interest rate. The same thing goes for leasing a car.