Important Topics:
Lease vs. Buy a Car
Since most people don't have the cash to buy a new car, it often comes down to a decision
between leasing and buying with the help of an auto loan. Here is a quick look at the main
benefits of each type of car financing.
Lease or Buy? It's Also a Lifestyle Decision
First, it's important to understand that the decision of whether to buy or lease isn't just a
dollars-and-cents decision. It depends on the intangible importance you give to owning a new
car. If the image of driving the latest model is essential to you, then you'll justify spending more
money for this privilege. If you look at a car as merely transportation, then owning the newest
car on the block will be lower on your priority list. Give these questions some thought as we
move on to the more tangible issues of buying with the help of an auto loan versus car leasing.
When Car Leasing Makes Sense
There are several aspects of car leasing that make it very appealing: Low down payments, low
monthly payments, low maintenance costs. However, the main advantage is that a customer
(with good credit) can get a car without putting much money down, and the monthly payments
will be lower than if you bought the car with the assistance of an auto loan. Furthermore, since
most cars are under warranty for three years, the car will be fully covered for mechanical
breakdowns during the length of the lease. (Note: Edmunds.com editors recommend threeyear leases as making the most financial sense.)
Look at the Big Picture
So far, car leasing sounds almost too good to be true. There is a drawback, however. Once you
start leasing, you always have a car payment. When you get to the end of your auto lease, you
have to begin leasing again, or buy the car. When you buy the car, you eventually pay the car off
and actually own it. At this point, you can continue driving the car as long as it runs. Sometimes
this is another five, six or seven years. And for those years, your expenses are minimal.
Simply put, car leasing is more expensive in the long run. The three scenarios are compared in
more detail in Your Car's Total Cost of Ownership. However, here is an easy way to look at it.
Student Money Management Center | 237 Nebraska Union | Lincoln, NE | 68588-0461
http://www.unl.edu/smmc | smmc@unl.edu | 402-472-9093
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Important Topics:
Lease vs. Buy a Car
Buying New or Used or Leasing — The 10-year picture
In the following example, we show you what it costs to buy and own a new or used car or to
lease a car for 10 years. In these examples, we assumed that the car was worth $20,000 when
new and was financed at a 6 percent interest rate. Also, in each case, a down payment of
$1,000 was made. These figures are estimates to give you a comparative feeling for these
different car financing scenarios.
If You Buy Your Car: Purchase your car with the help of an auto loan, and you will make
higher payments for the first five years, but then you will own it. Over 10 years, this averages
$191 a month or a total cost of $22,920, not including insurance, maintenance and the like.
If You Lease Your Car: Leasing is basically renting a car. Purchase your car with the help of
an auto loan, and you will lease more than three times, each time making an initial payment of
$1,000 and monthly payments of $323. For 10 years, this is a total of $41,760.
If You Buy a Used Car: If — with the help of an auto loan — you buy a four-year-old used
car for $8,000, put down $1,000, and pay it off in three years, your average monthly ownership
cost will be $63 for a total of $8,632 for a 10-year period. Of course, a used car might require
more maintenance, but if you allow an additional $5,000 for repairs, your total is still less than
$14,000.
Clearly, car leasing is the most expensive way to go. But those people in favor of leasing will
point out that, over that 10-year period, they drove three different new cars while the people
in the other two scenarios drove the same car. Furthermore, those driving the older cars
probably made at least one major repair as the vehicle aged.
Note: This paper was written by representatives at the University of North Texas Student
Money Management Center and is being used by permission of the University of North
Texas Student Money Management Center.
Source: www.edmunds.com
Student Money Management Center | 237 Nebraska Union | Lincoln, NE | 68588-0461
http://www.unl.edu/smmc | smmc@unl.edu | 402-472-9093
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