Smart Buying Essentials
Buying vs. Leasing
When faced with ever-increasing prices that seem to have skyrocketed since your last new vehicle purchase, it is hard to abstract what your monthly budget will permit: a $20,000, $25,000, or $30,000 purchase? Factors like big rebates and zero percent financing have complicated the decisions, often making it difficult to compare vehicles within a segment. Go for the savings now, or pay more for a vehicle that promises greater resale/residual value?
Just when you are getting discouraged, an attractive lease price grabs your attention in one simple tidy number: $399 a month. We can relate to that quite easily, hence part of the allure. Some quick
calculations reveal that same vehicle would cost a couple hundred more a month, for an additional year, to purchase. So is leasing a good deal and is it for you?
Advertised leases boast outstanding monthly payments in contrast to traditional purchases because you pay for limited use, essentially the depreciation plus finance charges during the term. Consider it an extended rental contract. Typical leases run 24 and 36 months, putting a new vehicle in your driveway at regular intervals, always protected by manufacturer warranty. Simply enjoy driving a new vehicle that makes you the envy of neighbors, then drop it off at the dealer when you are done. Beware: this leasing cycle may be hard to break, since you do not have a trade-in to apply toward a purchase, and vehicles aren't getting cheaper.
As much as we would like to plan our economic future, sometimes the here and now must take precedent. Leasing offers the opportunity to acquire a vehicle worth more than you could afford to purchase outright. But because vehicles suffer their greatest depreciation hit the first two years, leasing is destined to be more expensive than purchasing in the long run.
Our table presents the costs of buying versus leasing, showing not only the long-term differences, but the benefits of negotiating the lease. Discovering dealer holdback and incentives will arm you with powerful ammunition for haggling a more favorable price for either method. The advertised lease is dependent on a down payment (aka cap cost reduction) to deliver the juicy monthly price (note: $399 doesn't include tax), but that contradicts a real appeal of leasing: getting into a new vehicle for little out of pocket. The contract can be rewritten to remove that from the drive-away cost, which will already include the security deposit, disposition fee, and first payment. Mileage can be a real problem for leasees, since the dealer will exact costly penalties for exceeding the maximum allotment. Prepaying for additional miles at a lower rate can save serious money, and the surplus can be refunded.
The traditional buyer has few tricks other than to maximize the down payment and negotiate aggressively. Term length can be adjusted to achieve a favorable monthly payment, but the overall cost increases with every additional month. The $725.14 payment reflects a three-year loan (to match the lease), but while extending the term to 48 months lowers the monthly payment to a more reasonable $564.67, it adds about $1000 to the total cost of acquisition. Buying the vehicle ultimately means $30,105.04 out of pocket, but there would still be $19,230 worth of truck in the driveway after three years.
Stellar lease deals can be found, usually with manufacturer subvention, but buying will likely be more cost effective in the long run. Which profile below best describes you? This will give you a strong indication of which finance method would best meet your goals. Again, with some significant incentives being offered from automakers, examine each scenario carefully. If inclined to pursue a lease, be sure to monitor the monthly IntelliChoice GoldStar Lease award winners for the market's best values.
