OK, you've got your FICO boosted, researched some
cars you like and settled on one as your top choice. Arguments can
be made either way on whether it's cheaper to buy or lease. It depends
on your individual circumstances.
But one thing's for sure: Leasing makes for lower
monthly payments and typically no down payment. The reason is simple.
Let's say a new Honda Accord LX costs $24,000. You make a $3,000
down payment and buy the car; you have to pay off $21,000 in 48
months at 2.9 percent interest. Using Bankrate's auto
loan calculator, you can see that means a monthly payment of
$463.89.
But if you choose to lease the same vehicle -- with
the same interest rate and the same down payment -- you don't have
to pay off the $21,000 over four years -- you only pay off the amount
the car depreciates over the four years, plus a leasing fee.
Leasing example
Here's how it works: An auto lease payment has two parts -- the
depreciation payment and the leasing fee. For the depreciation portion,
take the same $21,000 and subtract the residual value, which is
the amount the lender predicts the car will be worth at the end
of the four years. Let's say that amount is $10,000. So, with a
lease, you'll have to pay $11,000 ($21,000 minus $10,000) over 48
months. That equals $229.16. The leasing fee portion involves what's
called the "money factor," a form of interest on the total
of the purchase price and the residual value. Take the capitalized
cost (minus any down payment), add the residual value and then apply
the money factor -- in this case .0012, which is the approximate
equivalent of 2.9 percent. That computes to a leasing fee of $39.20.
Add the depreciation fee to the leasing fee and you'll arrive at
the total monthly lease payment of $266.36.
That's a huge monthly savings -- $197.53 less than
the monthly purchase cost of $463.89, or about 40 percent less.
But keep in mind, at the end of the lease you own nothing. For an
easier time making these calculations, try our leasing
cost calculator.
When you buy a new car, the value of the car depreciates
dramatically as soon as you drive it off the dealer's lot because
it immediately becomes a "used" car. So, if you buy a
new car every few years, you would regularly incur big losses on
your investment in new cars. By leasing, you avoid this significant
loss of value.
If you're still undecided, try our calculator to help you decide.
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| By the numbers...lease
vs. buy (monthly costs) |
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