Car Lease Prices: Are They Really Cheaper?

Consider if car lease prices are cheaper than owning. New car ownership has long been part of the traditional “American Dream” along with owning your own home. However, new car prices have escalated, greatly outpacing the rise in consumer buying power. New car prices have led to larger loan amounts paid back over longer periods of time where interest rates and other fees make buying a new car sometimes an unwise choice when it comes to providing personal transportation. At one time, cars were financed for two or three years. Today you will find length of payment terms as long as 60 to 72 months. Here is a comparison to buying versus lending in a three-year contract.

Buying a New Car

The assumption is the driver accumulates 12,000 miles per year on a three-year loan for $20,000 at six percent interest. Here are the first year costs:

• Down Payment - $3000
• Monthly Payment - $608 - $7,296 for three years
• Insurance per year - $1,140
• Maintenance and repairs - $200
• DMV (Department of Motor Vehicles) fees - $400
• Total cost to buy in first year - $11,736

Leasing a New Car

Rising new car prices has led many people to consider leasing a vehicle because it does offer certain advantages:

• Low down payments – sometimes no down payment
• Lower monthly payments
• Sales tax is only paid on the car’s value at end-of-lease, not the full Manufacturer’s Suggested Retail Price (MSRP)

Leasing may allow a consumer to obtain use of a car without a great financial impact. You will be paying less down and lower monthly payments than if buying the same car. Here are the first year costs:

• Down payment - $1,000
• Monthly payment -  $350 - $4,200
• Insurance - $1,380
• Maintenance and repairs - $200
• DMV fees - $400
• Total cost - $7,000

Comparison

Your out-of-pocket expenses for a lease car deal are $7,000 – far less than the $11,736 it will cost for buying the same new car. One factor to note is the insurance costs for leasing a car are normally higher than that for buying a car. Also, when comparing leasing costs versus buying, tax considerations also weigh in.

Many consumers can deduct leasing charges as legitimate business expenses, thus writing off the entire cost including all maintenance and repair fees. If the use of the vehicle is the necessary focus, acquiring an asset is not the primary consideration.

Many businesses that lease vehicles find the opportunity to rotate in a new model every couple of years as an attractive and value laden aspect associated with leasing. Buying a vehicle, whether as an individual or as a business, will one day require disposal of the car and may necessitate some type of cost.

Furthermore, leasing a vehicle has certain warranty advantages that do not affect the consumer’s pocketbook. Many lease deals include maintenance agreements that although are bought and most likely financed, still have the consumer coming out on top with total lower costs. The disadvantage with leasing a vehicle versus ownership is the fact after a car has been paid off, an owner no longer has the burden of monthly payments that a leased car still will have.