At first glance, it may appear that leasing a vehicle is cheaper than financing it. While leasing payments may be cheaper initially, you might spend more than the finance amount if you purchase the vehicle after the lease or if you supply a large down payment. Before you pursue either option, consider overall and long-term costs.
Payment
If you compare a finance payment to a lease payment, the lease payment is likely cheaper, sometimes by more than $100. This can help you to budget a new car payment that you couldn't have afforded otherwise. Also, you can drive a new car with more options. For example, a comparable finance may afford you a vehicle with front-wheel drive when you need an all-wheel drive because of payment differences. You are less likely to settle if pursuing a lease.
Money Down
The money required for a lease down payment can prove disadvantageous. Most leases are advertised with low payments but require thousands down. To gauge the difference in payment, compare a finance and lease payment using a similar down payment. Or, if you don't plan to supply a down payment, your monthly lease payment can increase significantly. It is not advisable to provide a large down payment toward a lease. If your vehicle becomes a total loss, your insurance company pays the vehicle's value to the leasing bank, not you. You cannot get back your down payment.
Warranty
Because most leasing programs offer a 36-month term with low annual mileage, you will likely drive the vehicle during its factory bumper-to-bumper warranty period. A bumper-to-bumper warranty covers just about anything in your car aside from maintenance or body work repairs. If you plan to purchase a vehicle, an optional extended warranty can cost thousands of dollars. Consider the cost of the warranty with your purchase price to further compare overall cost.
Vehicle Value
If you plan to purchase your leased vehicle, you will likely pay more for it in the long run. Leased vehicles are purchased from the dealership by your leasing bank. You then pay the bank for the vehicle's depreciation. If you failed to negotiate pricing, you likely paid MSRP (manufacturer's suggested retail price) for the car. If you purchased the vehicle instead of leasing it, you likely could have taken advantage of manufacturer rebates, or instant money off of the price of the car. Before you pursue a purchase or lease, check with a dealership for offers. Some manufacturers offer thousands off new car pricing as an incentive to buy.
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