What to do? Lease or Buy is an age old question with benefits on both sides. Anyone driving a car has had to make this decision, which doesn’t make it an easy one. There are advantages to both as well as downsides. But you know all of this already. So, what is the right decision?

As with life, there is no easy answer. Everyone has their own set of specific needs and lifestyle. What will fit better into your life that is the question. Leasing and buying are completely different. Specifically, leasing finances the use of a vehicle, and buying finances the purchase of a vehicle.

First question you will need to answer to yourself is what you want out of the deal. What do you want? Are you more concerned with having a new car every few years? Driving a leased car means that you will have no headaches repair-wise. Are you willing to pay for this type of security? Or is actually owning the car when it’s all over; what matters most to you..? Perhaps you’re willing to forgo the low up-front costs and zero down payment for the idea of being a car owner, not just a driver. Are you willing to pay higher monthly payments for the first few years in order to be debt-free and own your car?

As you can see, there is no easy answer. Let’s get your information in order so as to figure out your situation. Since you already know that leasing and buying are different, we’re not going to split hairs.

This just in…buying and leasing are different!

• Buying means that you are paying for the car, the entire cost of the car is on your tab. Buying requires a down payment, dependant on your credit history. You will also be responsible for the sales tax and a sales interest fee, also based on your credit history. Your first payment will be owed the month after you ink your contract. Down the road, if you become tired of your car, you can trade in or sell it for the market depreciated resale value.

• Leasing, however, requires you to pay for a portion of the vehicles cost. You are paying for the luxury of “using” the car for the term of your lease. Most times you will not have to come up with a down payment, but, you will pay the sales tax on your monthly payments. There will also be a financial rate, or “money factor” that will figure into your monthly payment. Money factor is similar to the interest on buying a car. When you lease you are required to pay fees and a security deposit, no required when you buy a car. When you end your lease, you will return your vehicle or opt to purchase for its resale market value.

• Is your head spinning yet? Here’s an example. A car that sells for $25,000 will depreciate in value about 7-8 thousand dollars. That is the depreciated market value that you are paying for when you are leasing this car. When you buy, you pay the entire 20k, finance charges and possible fees. This is why leasing will lower monthly payments.

The Anatomy of Lease and Loan Payments

• Leasing is made up of two important parts: depreciation charge and finance charges. The depreciation part of the payment will re-pay the leasing company for the usage of their car. Leasing is like a service, you’re consuming their service. Now, the leasing company also has money in the car while you’re driving it all over town. This is repaid to the leasing company by the finance part. Basically, you borrow the money from the leaser that they used to buy the car from the dealer. Also, that money is repaid by the money in your monthly payments and when the lease is over, you finish up the remainder of the money owed.

• There are two parts to a loan payment. The principal charge is related to the actual cost of the car itself and the finance charge is the loan interest charge. A little side note, all cars depreciate the second that you drive off the lot. Part of the charge of a loan payment is called a depreciation charge. That’s money that you’ll never get back, even on a resell situation. That’s the cost of doing business.

• The last few bucks of your payment are to cover the equity of the car. It is what is left of your car’s initial value minus the depreciation. Equity is a lot like resale value. So, if you decide to sell your ride, that equity is like and insurance policy on your investment. Obviously, the longer your drive your car, the less equity you have. The bottom line is: you will never get back what you paid for your new car.

Important! Before You Go To The Dealer To Lease, Make Sure You Know The Following Information:

• What Insurance Are You Geting? We reccomend AIG Direct or 21st Century for the most relaible and inexpensive young driver insurance. You can also check NetQuote.com to compare Insurance Prices around the web. Also relate to our Complete Guide On Auto Insurance

• Have You Read Our Guide On Buying Used Cars? Read This

• Will You Need A Loan? We reccomend using MyAutoLoan.com
  or Any-Credit-Auto-Loan.com

• Do You Have Good Credit? Why not check for Free with Equifax.

Piggy Banks with 4 Wheels

When you buy a car, you are investing your money in a sucking savings account, meaning that what you put in is not what you will extract out. Your payment gets pieced up to cover depreciation and finance charges. What’s left over of your car is what you have as reward for your money and time. Now it starts to make sense, cars are a crappy investment any way you slice it.

Leasing has no such savings account. It’s not our car, so there’s no equity built up. You pay what you consume and you get nothing extra for yourself. To stress, you own nothing at the end of a lease. But, at the same time, you aren’t getting screwed by the depreciated value of a used car that a buyer has at the end of a lease. So, it works out to be similar in loss/gain. Cars depreciate whether they are leased of bought, the money is still gone.

If you lease, you could have the option of making your monthly payments dump into actual investments like stocks and mutual funds. (You know investments that could actually yield a profit!) Financial experts actually call this an advantage of leasing. Most consumers opt to put that cash toward household bills.

Recapping, leases do not build equity. Buying will build equity because they have higher monthly payments, because part of your payments pads the equity value. Leasing = lower payments with no equity. Buying = higher payments with just a little bit of equity.

Leasing Is A Little Tricky.

• Leasing can be tricky. There are things like residuals and money factors and you could potentially get screwed. Information is going to be your best friend, don’t rush into anything. It’s a slippery slope and there is a lot of room for you to get in over your head.

How About Lease To Buy Plans?

• There is a hybrid of the lease/buy plans. It is the lease to buy idea. People plan on buying the car after a lease ends, or before it ends. This is ALWAYS more expensive than just buying in the first place. While you can argue this tactic as a good idea, you need to know that it will drain your pockets in the long run.

Fall into the GAP.

• If your car is stolen or somehow destroyed, you need to be reimbursed. This is where gap coverage comes into play. Car leases have gap coverage figured into the deal, when buyers don’t always get it standard. Gap insurance will pay what you owe on your loan/lease if your car becomes stolen or destroyed.

• Obviously, gap insurance is important, and luckily, easy to find. In our day of numerous loan and lease deals, with all of the in’s and out’s of those complicated deals, you can easily get caught owing more than your new car is worth. You paying hundreds or maybe even thousands to some finance company don’t sound like any kind of fun.

• Whether you are leasing or buying, do yourself a solid and make sure that gap coverage is written into your contract. Sometimes gap coverage comes at an additional cost, but, it’s worth it.

But, which is better...leasing or buying?!

You’ve done the homework: crunched the numbers and read enough websites to make your brain scream! Should you buy or lease? There are a few key points that we could summarize and make simple here:

1. The monthly cost of a lease is always LESS than the cost of buying. The payments can be as much as 60% less than a buying contract. Even when compared to 0% interest payments, leasing is less monthly.

2. If you sell or trade in your car at the loan end, it is comparable to a mid-level lease deal. In the long-run, the total cost of leasing vs. buying is about the same after you sell your market value car. As the buyer, you’re getting your money on the back end of the deal. Sometimes, that could add up to leasing a little bit more expensive than buying, but it’s not a sure thing. However, when you contrast the monthly lease savings vs. sales tax savings, leasing can cost less than buying.

3. When all is said and done, leasing will always be more than leasing. It could seem like less because of the lower monthly payment. To make your investment really work for you, don’t resell it. If you pay off your loan and drive your car for years to come, you are avoiding the depreciated resale trap. Read, drive the car until the wheels fall off OR until fixing it becomes a drain on your resources.

4. There is no real cut and dry answer, it all depends on the one super important variable—you! We all have different priorities and responsibilities. Someone that needs to lease because they need the newest car on the market is different than a family that buys a new car because it will be handed down through a brood of new drivers.