Leasing vs
Buying Guide
Leasing:
The Future of Car Ownership!
Automotive
lease volume reached an all-time record level in 2016 of 4.3 million
vehicles and accounted for 31 percent of all new vehicle sales. Nearly one
third of millennials who purchased a new vehicle in 2016 decided to lease.
For decades now, a sizeable
proportion of luxury cars have been leased. But that has changed, with more
compact cars, mainstream sedans, and small SUVs entering the new-car lease
market, as well. Attractive finance rates have made some leases pretty good
deals.
How
Loans and Leases Differ
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BUYING
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LEASING
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Ownership
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You own the vehicle and
get to keep it as long as you want it.
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You don’t own the
vehicle. You get to use it but must return it at the end of the lease unless
you decide to buy it.
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Up-Front Costs
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They include the cash
price or a down payment, taxes, registration, and other fees.
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They can include the
first month’s payment, a refundable security deposit, an acquisition fee, a
down payment, taxes, registration, and other fees.
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Monthly Payments
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Loan payments are
usually higher than lease payments because you’re paying off the entire
purchase price of the vehicle, plus interest and other finance charges,
taxes, and fees.
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Lease payments are
almost always lower than loan payments because you’re paying only for the
vehicle’s depreciation during the lease term, plus interest charges (called
rent charges), taxes, and fees.
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Early Termination
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You can sell or trade in
your vehicle at any time. If necessary, money from the sale can be used to
pay off any loan balance.
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If you end the lease
early, charges can be as costly as sticking with the contract. On occasion a
dealer may buy the car from the leasing company as a trade-in, letting you
off the hook.
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Vehicle Return
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You’ll have to deal with
selling or trading in your car when you decide you want a different one.
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You return the vehicle
at lease-end, pay any end-of-lease costs, and walk away.
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Future Value
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The vehicle will
depreciate, but its cash value is yours to use as you like.
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On the plus side, its
future value doesn’t affect you financially. On the negative side, you don’t
have any equity in the vehicle.
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Mileage
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You’re free to drive as
many miles as you want. But keep in mind that higher mileage lowers the
vehicle’s trade-in or resale value.
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Most leases limit the
number of miles you may drive, often 12,000 to 15,000 per year. (You can
negotiate a higher mileage limit.) You’ll have to pay charges for exceeding
your limits.
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Excessive Wear and
Tear
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You don’t have to worry
about wear and tear, but it could lower the vehicle’s trade-in or resale
value.
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Most leases hold you
responsible. You’ll have to pay extra charges for exceeding what is
considered normal wear and tear.
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End of Term
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At the end of the loan
term, you have no further payments and you have built equity to help pay for
your next vehicle.
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At the end of the lease
(usually two to three years), you can finance the purchase of the car, or
lease or buy another.
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