ÂWhat is it about leasing a car that some find so "unattractive"? The payments are cheaper, you can get a new car every few years, and a lease is often easier to get than financing for an auto loan. So why doesn't everyone lease? Is it smarter to lease a car or buy one?Â
Why Is Leasing A Car Cheaper Than Buying
Phillip Reed, a consumer advice editor at Edmunds -- an auto analyst resource -- points out that the age-old decision between leasing and buying isn't actually the difference in finances. Instead, Reed says, it's a lifestyle choice. People who like to drive a new car every few years simply find a lease more appealing, and since the individual payments are less expensive than purchasing a car, lessees are usually able to drive nicer cars than they could afford to buy outright.
ÂÂLeases have several aspects that make them good choices over buying a new car -- like the fact that up-front out-of-pocket expenses are generally lower. For example, the down payment is usually low, and sometimes nonexistent. Monthly payments, too, are much lower than loan payments, and leases are often easier to obtain than a loan. What's more, maintenance costs are next to nothing, since most warranties for new cars last three years -- which is usually around the same amount of time as the average lease period. Edmunds, by the way, recommends three-year leases as the ones that make the most financial sense for the lessee -- the person leasing the car.
Edmunds evaluated the costs of car ownership versus leasing, based on a new $20,000 car financed with a three-year loan or lease at 6 percent interest. What they found was that, after a five-year period, the real cost of owning a car was actually slightly higher than leasing. With monthly payments, down payments, maintenance, insurance, taxes, state fees and interest, the total cost of ownership came to $32,388 for five years. Under the same circumstances, the cost for leasing cars during a five-year period totaled $32,140.
After adjusting for maintenance and other operational costs, you would have spent around $43,000 for that new $20,000 car you purchased 10 years ago. It's a staggering amount, but on the other hand, consider how much you would have spent leasing cars for the same 10-year period: Assuming there are no extra fees or penalties, you would have coughed up more than $64,000. Plus, you would have built no equity.
Sources:
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2 -leasing/quick-guide-to-leasing-a-new-car.html
3 -buying/compare-the-costs-buying-vs-leasing-vs-buying-a-used-car.html
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When choosing gap coverage, make sure to compare quotes from different insurance companies before deciding on a plan. This can help you find the most-cost-effective option for you and can be much cheaper than buying insurance through a dealer.
If you are looking at a long term car rental or leasing a car, there are some things to consider before choosing this option over buying a car. Many people choose to lease or rent a car long term because they can drive a new car that they could not normally afford to buy. SIXT rent a car has great long-term car rental offers.
Leases will generally require you to maintain the upkeep of the vehicle. This can include but is not limited to things like oil changes, repairs, and parts replacements. Some leases will cover the cost of regular maintenance work like oil changes. This is something you can discuss when working through the lease agreements. If they do cover it, make sure to get the details on where it must be done, when, and how they will ensure payment."}},"@type": "Question","name": "Is it more expensive to buy or lease a car?","acceptedAnswer": "@type": "Answer","text": "While monthly payments on the lease of a car can be less expensive than the ones when buying a car, it is usually more costly to lease in the long run. You will never own the asset and will make the monthly payments continuously instead of paying off the loan to buy the car."]}]}] .cls-1fill:#999.cls-6fill:#6d6e71 Skip to contentThe BalanceSearchSearchPlease fill out this field.SearchSearchPlease fill out this field.BudgetingBudgeting Budgeting Calculator Financial Planning Managing Your Debt Best Budgeting Apps View All InvestingInvesting Find an Advisor Stocks Retirement Planning Cryptocurrency Best Online Stock Brokers Best Investment Apps View All MortgagesMortgages Homeowner Guide First-Time Homebuyers Home Financing Managing Your Loan Mortgage Refinancing Using Your Home Equity Today's Mortgage Rates View All EconomicsEconomics US Economy Economic Terms Unemployment Fiscal Policy Monetary Policy View All BankingBanking Banking Basics Compound Interest Calculator Best Savings Account Interest Rates Best CD Rates Best Banks for Checking Accounts Best Personal Loans Best Auto Loan Rates View All Small BusinessSmall Business Entrepreneurship Business Banking Business Financing Business Taxes Business Tools Becoming an Owner Operations & Success View All Career PlanningCareer Planning Finding a Job Getting a Raise Work Benefits Top Jobs Cover Letters Resumes View All MoreMore Credit Cards Insurance Taxes Credit Reports & Scores Loans Personal Stories About UsAbout Us The Balance Financial Review Board Diversity & Inclusion Pledge View All Follow Us Budgeting Budgeting Calculator Financial Planning Managing Your Debt Best Budgeting Apps Investing Find an Advisor Stocks Retirement Planning Cryptocurrency Best Online Stock Brokers Best Investment Apps Mortgages Homeowner Guide First-Time Homebuyers Home Financing Managing Your Loan Mortgage Refinancing Using Your Home Equity Today's Mortgage Rates Economics US Economy Economic Terms Unemployment Fiscal Policy Monetary Policy Banking Banking Basics Compound Interest Calculator Best Savings Account Interest Rates Best CD Rates Best Banks for Checking Accounts Best Personal Loans Best Auto Loan Rates Small Business Entrepreneurship Business Banking Business Financing Business Taxes Business Tools Becoming an Owner Operations & Success Career Planning Finding a Job Getting a Raise Work Benefits Top Jobs Cover Letters Resumes More Credit Cards Insurance Taxes Credit Reports & Scores Loans Financial Terms Dictionary About Us The Balance Financial Review Board Diversity & Inclusion Pledge LoansCar LoansLeasing vs. Buying a Car: Which Should I Choose?It's More Than Just Your Monthly Payment
While monthly payments on the lease of a car can be less expensive than the ones when buying a car, it is usually more costly to lease in the long run. You will never own the asset and will make the monthly payments continuously instead of paying off the loan to buy the car.
If you like driving a new car every few years and you're willing to keep it in good condition, leasing is a great choice. On the other hand, you should consider buying if you want to own the car and modify it.
So, after doing some research into the respective prices for leasing and buying an average family car, I decided to reach out to some experts in the field to find out what they thought about the leasing vs. buying debate, in terms of which was cheaper.
Many people choose to buy a car instead of leasing. Leasing a vehicle rather than buying it, however, can be an effective method for saving money on the cost of a brand-new one. Like any other lease, a car lease works by a dealership offering a new car to a driver for a set payment each month. Much like a regular car purchase, you will likely have to put a down payment on the lease. At the end of your lease term, you may have an option in your contract to buy the car, extend the lease or look for a new lease vehicle.
The drawbacks of leasing a car, however, may affect whether leasing is right for you. When a vehicle lease is up, you give the car back to the dealership and do not see a return on the payments you have made. If you buy a car, especially if it is known for retaining value, you may be able to recoup some of the expenses of driving it. With no ownership of the car, you cannot use the money you have paid in the lease to lease or purchase a new car, such as trading in a car you own. Many lease agreements place annual mileage limits on the leased vehicles. If you drive a lot, you may be charged mileage for any miles driven over the allotted amount. Drivers who lease one car after another may benefit from lower monthly payments. Over the long term, however, you may end up spending more on constant monthly lease payments than you would on a set amount of payments to buy a car.
Car insurance prices are dependent on factors of both you and the car you are insuring. Factors that focus on the driver include age, length of time driving and previous driving history. Your vehicle will contribute to insurance costs based on the make and model of the car, as well as the specified use of the vehicle. These factors do not change when buying or leasing a car. All coverages equal, leased cars are not more expensive to insure.
When it's time to buy a car, most of us consider three options: buying a new car, leasing a car, or buying a used car. If you decide to go the used car route, you can choose to buy a previously leased car, which can have some unique benefits and disadvantages worth taking into account.
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