Which is the best way to buy your next vehicle? This is the million dollar question. There really isn’t a right or wrong answer. It all depends on your specific preference.
Leasing is for you if you like lower monthly payments, a new car every 3-4 months, drive an average number of miles, if you like having a car always under warranty.
Buying is for you if you like the idea of ownership, you plan to keep you car for a long time, and you don’t mind the cost of repairs once the warranty has expired.
Before you make your decision to buy or lease make sure you fully understand the exact terms involved with either choice.
Leasing – When you lease, you pay only a portion of the vehicle’s cost. Since you are only paying for the car while you lease it, payments are 30% - 60% less. In most cases you have the option of not making a down payment, and may only pay only pay taxes only on your monthly payments. Your first payment will be due at the time you sign your contract.
Leasing is made up of two parts; the finance charge and the depreciation charge. The finance charge is the interest on the money the dealership has tied up in your car while you are driving it. You repay part of the money in your monthly payments, and repay the remainder when you either buy or return the vehicle when the lease term ends.
Buying – When you take a loan to buy the vehicle you pay for the entire cost regardless of how many miles you drive. You usually need to make a down payment, and must pay the sales tax upfront. Your first payment will be due one month after you sign your contact.
Loan payments also are made up of two parts; the finance charge which is the interest on the loan, and the principal charge which is what you still owe on your vehicle. The remainder of each principal payment goes towards your equity. Equity is what you will receive when you sell your car. High mileage and the longer you own your car will reduce your total equity.
So is it better to lease or buy? Again Its personal preference. Below is a table created to show you the advantage of each.
|
Lease |
Loan |
Terms |

Lease terms are usually between 2 to 4 years. |
Loan contracts are usually signed for 4 to 6 years. |
Type of Vehicle |

The shorter term and lower monthly payment of a lease agreement allow you to drive a new and more expensive vehicle every 2 to 4 years. |
Higher monthly payments make driving a new or expensive vehicle every 2 to 4 years unpractical. |
Ownership |
Unless you decide to purchase, you must return the vehicle at the end of the lease. |

You own the vehicle. |
Up-Front Costs |

Up-front costs include a monthly payment, security deposit, down payment, taxes and registration fees. If you take into consideration the total cost of the vehicle and the monthly payment you want, the sum is usually less than the up-front costs of purchasing. |
Up-front costs include down payment, taxes, registration fees, and other charges. This amount is usually larger when compared to lease, especially if you want an expensive vehicle with low to moderate monthly payments. |
Monthly Payments |

Monthly payments are calculated based on the vehicle's depreciation during the lease term, rent charges, taxes, and other fees. Lease payments are usually lower than loan payments. |
Monthly loan payments are based on the total amount of purchase price, plus interest charges, taxes and other fees. |
Insurance |
The insurance premium is usually higher |

The insurance premium is usually lower. |
Early Termination |
You are responsible for early termination charges, as stipulated in the lease contract. |

You are responsible for paying off the loan. |
Vehicle Return |
You need to return the vehicle at the end of the lease. There may be some end-of-lease charges. |

You keep the car. |
Future Value |

The lesser bears the risk of the vehicle's future market value. |
If you decide to sell or trade-in the vehicle at the end of the loan term, the risk is yours. |
Maintenance |
You are responsible for the maintenance of the vehicle during the lease term. |
You are responsible for the maintenance of the vehicle. |
Mileage |
Most leases impose a vehicle mileage limit. There will be extra charges if actual mileage exceeds the contract limit when you return the vehicle. |

No limit. |
Excess Wear |
You might need to pay extra charges when you return the vehicle if the lessor determines that vehicle wear and tear is over the contract limit. |

No limit. Like mileage, however, more wear and tear equals lower resale or trade-in value for your vehicle. |
End of Term |
At the end of lease, you can return the vehicle and walk away, lease another vehicle or purchase it for the residual value. |

The vehicle is yours. |
Just like buying anything there are sometimes certain fees that you will always have to pay. These two fees our something that you will not be able to negotiate with the dealer.
- Applicable Sales Taxes & Title Fees
These charges are non negotiable and all of the money is sent to the State, and Federal Government. No way to get around these fees.
This is the cost of shipping the vehicle from the plant where it was built to the dealer's lot. The cost is typically $400 and is usually included on the sticker.
Add-ons You May Want To Think About.
Some of these products may appeal to you. Instead of purchasing right away, ask the business manager to provide you with information so that you can read at home, and let them know in a couple of days. This prevents you from purchasing things under pressure.
A credit life-insurance policy covers your car payments if you die. Our advice: Buying life or disability insurance from an auto dealer just doesn't make a lot of sense. If this is something that worries you find a good life insurance agent instead.
- Accident & Health Insurance
Accident & Health insurance will cover the amount of your payment in the likely hood you become sick or disabled. Buying Accident & Health insurance from an auto dealer just doesn't make a lot of sense. If this is something that worries you find a good life insurance agent instead.
Over the past decade the quality of vehicles has vastly improved. Most manufactures offer a very good manufacture warranty programs and the need of buying an extended warranty has decreased.
The only reason that we would recommend an extended warranty is if you plan on keeping the vehicle after the manufactures warranty has expired and you see are struggling to make the payments in the future.
If you are in a cash tight situation a extended warranty can help avoid agonizing over decisions over whether repairs need to be done or not. They may even save you from financial disaster.
If you plan on getting you car insurance through the dealer make sure that you shop for competitive rates first. We would recommend you checking out both Geico and Progressive first before making any decisions with you dealer.
The most common add-on dealers sell is fabric protection. Some dealerships will charge close to $200 for this service. There is no difference between what they sell and what you can easily but in the store. Our advice is to go buy a can of Scotch Guard
Gap Insurance is extra insurance that will cover the "gap" between the actual value of your car at the time of the accident and the amount you still owe the finance company.
Most finance companies require you owners to have full coverage on your new vehicle, but gap insurance isn't usually included.
If your car is totaled or stolen within the first two years, you could be in for a nasty surprise, due to the rapid depreciation of new cars you could owe more than you car is worth.
We recommend buying this extra insurance if you plan to finance more than 95% of the vehicle.
Your car paint is already protected with coatings right from the factory. If you take reasonable good care of you car you should not need to pay for this extra protection.
These days cars are rust-proof enough right out of the factory, to last longer than anyone is likely to keep a car. Our suggestion is unless you have some extreme reason to expect a rust problem you should probably pass on this add-on.
Every 23 seconds a vehicle is stolen in the country. Most police departments and insurance companies will tell you that the most effective anti-theft device for your car in VIN window etching. Car dealerships charge anyway from $150 - $300 for this service and in most cases only will cost them around $14. Our advice is to do this yourself. You can buy VIN etching kits for $20 and will only take a few minutes of your time.
When you buy a maintenance plane you are essentially pre-paying for all of your scheduled maintenance. We have found that most dealer plans will cost much less than paying full price for all of you upcoming scheduled maintenance. Our advice is to get pricing from the dealership on the normal maintenance costs and see if the plan is cheaper. Also make sure that you are comfortable with their service department and that the dealership’s location is convenient for you.
Add-ons The Dealer May Try To Slip Into Your Contract.
Before you sign any paperwork make sure that you carefully read all of it. Many times the dealer will try to slip extra costs into your paperwork with out you even knowing. Here are a couple of the usually suspects to watch out for.
This is a dealer added fee. Most dealers cannot take it off the buyers/sales order however you should negotiate to take it off the price of the car. Industry averages for this fee are between $299 - $799.
- Dealer Protection Packag e
By using a name like "dealer protection package" dealers can front load their vehicles with add on products; like paint protection, fabric protection. This is very common with Toyota.
The cost of advertising is associated with running a business, which means the dealer should be paying it, not you. However, this doesn't mean dealers won't try to get you to pay. Read over your contract to make sure advertising fees have not been added.
- ADM (Additional Dealer Markup)
This is pure profit for the dealer and something that you should never pay. Sometimes dealers will try to add this on if the vehicle is in hot demand.