Here’s the script for the “Car Buying vs Leasing” video above:
Now that we have you financially prepared to take home the vehicle, your final consideration regarding how you want to pay for the car is, car buying vs leasing.
When you buy a car, your eventual intention is to own it. You’ll either pay cash or finance it. When you pay cash, the state will issue an ownership title in your name within a month or two of the transaction, and then you own it. When you finance it, ownership on the title is granted to the lienholder. Within a month or so of paying off your loan, the finance company will transfer their title to you, making you the owner.
When you lease a car, you’re essentially renting it for an extended period, typically two to four years. You will never own the car unless you either finance it or pay cash at the end of your lease term for the remainder of the balance. Your payments are not made to increase your equity. You’re basically paying for depreciation as well as interest, referred to as a money factor in leasing. You can pay for the entire term of the lease up-front, or you can make monthly payments.
There are calculators all over the internet dedicated to helping you decide which option is better for you financially, but since it’s nearly impossible for someone to figure out all of the factors exactly without being a dealer, it’s kind of a pointless exercise trying to calculate it. I’ll just boil it down to the nuts and bolts of which one you will want to consider.
When deciding between car buying vs leasing, be honest with yourself.
How long will you want to drive this car before getting a new one? If that number is fewer than four years, leasing is probably the wiser financial option. Especially if you’re never going to own the car anyway. Every car depreciates much faster during the initial years of use then later. With buying to own, your payment is higher because not only are you paying for interest and depreciation, but you’re also buying equity. With a lease payment, your dollars aren’t wasted on trying to buy equity. If you sign up for a three-year 36,000-mile lease, you will never drive a car out of manufacturer warranty.
The two most frequent arguments that I hear about car buying vs leasing is that number 1, “You’ll never own it” and number 2, “I drive too many miles.”
Well, if you finance a car for 60 or 72 months and trade it in after four years, guess what, you’ll never own it anyway. Finally, lease agreements are available in mileage increments from ten to twenty thousand per year. If you go over that total allotment, which isn’t per year, it’s by the term.
So say you commit to a lease with a 36 month term and 12,000 miles per year, they won’t check every year to see how many miles you’ve driven, it will just need to be at or below 36,000 miles when you return the car, or you will get charged ten to twenty cents per mile when you bring it back.
In this example, going by the trade-in price, your extra mileage ends up costing you about six cents per mile if you own it at trade-in, whereas with a lease, you will pay anywhere from ten to twenty cents per mile.
One final note on car buying vs leasing. A manufacturer may have lease incentives available, but you won’t usually get a reduction in the purchase price, that’s why I won’t recommend buying a lease at the end of its term. It will be overpriced. Say you’re looking at a $30,000 dollar car with a $2,500 dollar rebate on a purchase. In a lease, that specific rebate is off the table, though they may have other lease incentives.
Your agreement will likely be written at or near sticker price with the incentive offered being a lower money factor and maybe a few hundred dollars. This is all fantastic because you’re driving a new car that you would not want to own anyway as you’ll get another one in three years, but there will be a place in your lease where they’re offering a price for you to buy it at the end of the lease. Just keep in mind that price likely has no reduction in purchase price from original sticker as it would have if you bought it instead of leasing in the first place.
I love buying and leasing and will use each method for different reasons. When we get to negotiations, I will teach you how you can lease a car and back the dealer off from sticker price at the same time while still creating a win-win situation.