We’ve all seen those “attractive lease rates” on TV. They’re usually much lower than the standard monthly payments, and you can usually afford to get a nicer car if you lease. But, does leasing really make sense for you?
The best way to explain the difference between leasing a car & buying a car, is to think of your house. If you buy your house, you’re committing to a 30-year payment plan, after which, you’ll own it free and clear. However, you’re responsible for all the maintenance & repairs. So, if the air conditioning system dies on a hot summer night. You’re the one that has to call the repairman, and pay him time and-a-half…because it’s the weekend.
If you rented (leased) your house, all you’d have to do is call your landlord. And he’d be the one paying Quick Fast & In a-Hurry A/C Services. While renting will save you a bunch of money over the life of the lease. You’ll never actually own the house (or car…in case you’re confused). And, you can’t change anything on the house (car), because you don’t own it. So, if you don’t like the paint color in the kitchen (or wheels for our little metaphor), too bad. You don’t own it, so you have to get used to it.
Most leasing agencies won’t allow you to modify anything on the car, because that would ultimately affect the car’s resale value. Don’t forget, they’re going to sell the car once your lease is up, so condition is very important to their bottom-line.If you like to “personalize” your cars with upgraded stereos, or different wheels, then you’re going to have to buy the car.
How a lease works
Since you’re basically renting the car from a leasing agency, you’re not responsible for the repairs (unless you break it), and many leases will even include regular maintenance in the price. The monthly lease payment is based on the anticipated depreciation of the car over the life of the lease. So, if you lease a $40,000 car for 24 months, and the expected depreciation is 15% per year. You’re financing that $12,000, plus lease fees and finance charges. By contrast, if you buy that same $40,000 car. Your monthly payment will be based on the entire $40k, plus interest and finance charges. So, you can see why lease payments are so much cheaper.
The downside of a lease, is that you won’t actually own the car once the lease is up. You’ll be given the option to purchase the car from the leasing agency. Or, you can fork over another down payment, and lease a brand new model.By contrast, if you had purchased the car to start with, you would eventually pay it off, and have no more car payments.
So there you go. If you like getting a new car every couple of years, and you don’t want to worry about repairs and maintenance, a lease would suit you just fine. But if you like “knowing the car is yours”, and you want to modify it at some point, then purchasing would be your best option.