Determining whether it is more economical to lease or buy a car is not simply a matter of looking at the monthly cost or the purchase price. Instead, to get a complete picture, numerous factors need to be taken into consideration.
A Look at Monthly Payments
In terms of monthly payments, leasing tends to be the more economical choice. For example, a sedan that costs $24,775, including leasing fees, results in a monthly payment of $294. In comparison, after a down payment of more than $4,000 on the same new car, the owner pays $400 a month. Purchasing a used car, such as a three-year-old sedan, drops the purchase price to an average of $15,688 with a down payment of $2,304 with a resulting monthly payment of $301.
Other Factors to Consider
When it comes to leasing and buying a car, each option carries unique expenses that need to be factored into the purchase price.
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- Interest Rates
Buying a car typically means taking out a loan with its accompanying interest rates. Consumers purchasing a new car tend to have better credit scores, according to data gleaned from Edmunds. This puts them in the position of being offered lower interest rates — often several percentage points lower when compared to those extended to buyers of used vehicles. Additionally, finance companies often offer special financing for purchasers of new vehicles.
- Repairs and Maintenance Costs
Leasing a car typically means not being responsible for the costs of repairs and maintenance beyond tire rotations and oil changes. However, some lease agreements include a free maintenance program that eliminates even these expenses. Buying a car means the owner foots the entire cost with used cars likely needing more repairs.
- Insurance
When a consumer purchases a car, they are typically required to maintain full insurance coverage on it for the duration of the loan. A lease agreement, on the other hand, might include a requirement for additional insurance which increases its costs.
- Ownership
One reason that people hesitate to lease is that they don’t own the car at the end of their lease. However, they often have the option to purchase the vehicle at what is typically the current market value.
The Bottom Line
Leasing is often a more attractive option when it comes to out-of-pocket expenses, especially when compared to purchasing a new vehicle. For the long term, though, because the consumer now owns their vehicle, their costs are actually lower compared to someone who leases the vehicle. That person would either need to purchase a vehicle or enter into another lease agreement in order to obtain transportation.
