The Buy vs. Lease Debate - What do you need to know? - Ask Patty

March 09, 2009

The Buy vs. Lease Debate - What do you need to know?

Differences Between Buying and Leasing
The main difference between buying and leasing an automobile is when you buy an auto, you own it and get to keep the vehicle once the contract is fulfilled. When you lease an automobile, you are borrowing the vehicle and must return it once the lease has expired, unless you choose the buyout option.

Other differences between buying and leasing include up-front costs, monthly payments, vehicle return and early termination, future value, mileage charges, excessive wear and tear and end of term buyout.

Buying vs. Leasing: Up-Front Costs and Down Payments
The up-front costs and down payments for leasing can be more than with buying a new car. When buying a vehicle costs include the cash price or down payment, taxes, registration and other fees and charges. Up-front costs for leasing may include the first month's payment, a refundable security deposit, a capitalized cost reduction (like a down payment), taxes, registration and other fees and charges.

Buying vs. Leasing: Monthly Payments
If you are included to compare monthly payments for buying vs. leasing, the leasing payments are usually lower, buy you don't get to keep any equity in the car. Monthly loan payments for buying the auto include the entire purchase price and interest along with other finance charges, taxes, and fees. With lease payments, you are paying only for the vehicle's depreciation during the lease term plus rent charges (like interest), taxes and fees.

Buying vs. Leasing: Vehicle Return and Early Termination
Depending on your circumstances, a vehicle return or an early termination may be either an advantage or disadvantage, depending upon your circumstances. You may return the car at lease-end, pay any end-of-lease costs, and walk away. If you no longer wish to drive the car before the end-of-lease, you can still turn the car back in but not without an early termination charge. If you buy a car, you are responsible for the pay-off amount. You may sell or trade the car whenever you wish to change vehicles.

Buying vs. Leasing: Future Value
When you lease, the leasing company has the risk of the future market value of the car. When buying a car, the buyer has the same risk when they choose to sell or trade in the vehicle.

Buying vs. Leasing: Mileage Charges
Most leases limit the number of miles you may drive during the term of the lease. If you buy, you do not have to worry about mileage or any charges you may have to pay for exceeding the lease limitations.

Buying vs. Leasing: Excessive Wear
It's important to note that excessive wear on the auto will affect your trade-in or resale value. However, excessive wear should not result in any extra charges or fees if you purchase the car.

Buying vs. Leasing: End of Term
At the end of a lease (usually 2 to 4 years), you'll still have payments if you choose to buy out your auto lease. At the end of a loan (usually 4 to 6 years) you'll own your automobile and no longer have monthly payments.

Final Tips on Buying vs. Leasing
Many people don't realize that even if they prefer leasing to buying, they are not obligated to pay the sticker price. You can negotiate with the dealer on an auto lease the same way you negotiate buying an automobile. Don't focus solely on the monthly payments but understand the capitalized costs, residual value and the interest rate.

Before leasing, we at myAutoloan.com recommend comparing the total cost of leasing to that of buying an automobile by applying for auto loans online. Our low rates and competitive terms may not change your mind about leasing, but it will help you compare the difference between monthly payments of buying vs. leasing.

By Dale L. Peterson
President and COO of myAutoloan.com

Dale is a seasoned veteran of the auto finance and financial services industries: Prior to co-founding myAutoloan.com, he served as SVP for marketing at AmeriCredit Financial Services, Inc. in Fort Worth, Texas, Corporate VP, marketing and sales at Harland-Clark, Inc. in San Antonio, Texas. Dale earned a BS degree in marketing from Ball State University, and a MBA from Kellogg at Northwestern University in Evanston, Illinois.

creative commons images courtesy crazyneighborlady at flickr.com

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