Dear Driving for Dollars,
My husband and I are shopping for a new car. Previously, we’ve always bought our cars, but this time we are thinking of leasing a car for two reasons. First, our family may be expanding in a few years, and we might need a bigger car than the model that suits us now. Second, there is a great lease deal on the car we are looking at with zero down and a low monthly payment.
We are wondering if we decide we want to buy the car at the end of the lease, is there any way it is possible to actually pay the same or less than if we commit to buying a car upfront?
It is possible, though only if you are getting a great deal on both the lease and the payoff amount. Generally speaking, automakers’ promotional lease deals are created by adjusting the primary factors: initial sale price, interest rate and cost to buy the car at the end of the lease term.
First, automakers typically lower the initial sale price of the car, called the “cap cost.” They may also lower the interest rate of the lease, aka the “money factor.” These changes may be done in combination with increasing the residual value, or the amount you pay if you want to buy the car at the end of the lease.
As a result, these deals often end up being more costly than buying outright, but not always. In some cases, the cost may not be that much more, so you may consider it a good trade-off to not be locked into owning a car that doesn’t suit your needs.
To decide which is better, add the total cost of leasing a car, including any upfront fees, and the residual value. Then, compare it to the car sale price plus all fees and interest over the life of the car loan, and see which number is lower.
Keep in mind that if you don’t buy the car, you could end up with surcharges at the end of the lease if the car has too much mileage or excessive dents, so you could end up with a bill that you didn’t foresee when you initially made your choice.
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