Choosing between leasing or buying a car with street signs

Is Leasing a Car Cheaper Than Buying?

Milad Hassibi March 7, 2019

Leasing a new car tends to become more expensive than buying a vehicle outright in the long run. However, if you have a healthy credit score and can qualify for leasing, your payments may be lower when you lease instead of buying. Here’s how.

Lease vs. Buying a Car

The reason why leasing is more expensive in the long run than purchasing a car outright comes down to the ownership of the vehicle. When you lease a car, you end up paying for the portion of it you used. This means that after a two to three year lease, all of the equity and ownership in the vehicle belong to the leasing company or dealership.

A couple drives off in a new convertible

Nearly all dealerships will give the lessee the opportunity to purchase the vehicle after the leasing period is over. For example, lets say you decide to re-lease another vehicle for a 3 year lease. After almost six years of monthly payments, you will not own a vehicle and you will still need to find a way to acquire another lease or purchase another car.

But how would this affect you financially? Let us assume, for example, you decide to lease a $25,000 SUV and that the car will be worth exactly half of its value once you finish your lease at $12,500. A down payment of $1,000 for a 3 year lease with a 4.3% interest rate makes your payments roughly $380 (estimated without sales tax).

Let us assume that after that lease is over, you took on a very similar lease for the same amount of time, which now brings us to 6 years of leasing. If you paid $380 per month over 6 years you have spent over $27,300 on a car with nothing to show for it when it comes to ownership.

Why Buying is Less Expensive

For our buying example, let’s assume you decide to take out an auto loan. If you end up with the same vehicle, interest rate, and a $2000 down payment for 6 years, your payments would be roughly $360. You end up paying about $26,100 in total over the next six years and you also own a vehicle you can sell for cash.

Although you have spent $26,100 to purchase a car, you now have an asset to show for it. The car is yours and it can be resold to another person. If you get 50% of the original purchase price when you sell the vehicle, then you would have only spent $13,050 on the cost of ownership when buying compared to $27.300 at the end of two three year leases in the example above.

Overall, buying a vehicle proves to be less expensive for the consumer in the long run. Plus, the consumer has an asset that they can liquidate or use as collateral if needed.

Final Note

If you are looking to get into a new car but have less than perfect, the team at CrediReady can help. Our vast network of verified lenders and dealers want to get you into a brand new car. Take a moment to fill out our 100% no-obligation loan inquiry form to get started and get into a new car today!

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