Lease vs Purchase Loan

This part is intended to help you understand the differences between a Lease and Buy a Car (Loan).

Wich one is better ? There's no universal answer for some people lease is better while other people buy the car is a better option, it depends on the specifics of each individual situation.

Loans and Purchase Loans are different kind of cars financing, the first one finances the purchase of the automobile while the other just finances the use of it.

There are some key factors that will help you decide wich one is the best choice for you, for example, having the ownership of the vehicle is important to you ? You Prefer having a nice car every 2 or 3 years, helping reduce the maintainance cost ? Are you concern about the long term cost more than having low monthly payments?

As you see there a lot of things that can make you take a decision, each one has a benefit so you should analyze the whole picture in order to take the best choice for you.

Differences between Loan and Lease

In a purchase you pay the total cost of the car, no matter how much you use it. Typically you have to make a down payment, pay taxes that can be paid in cash or included in your monthly payments, and the interest rate determined by your loan plan. At the end of the your contract you can decide to sell it to buy a new one or just keep it without having to pay anything more.

When your Lease you only pay for a part of the total cost, that is consider the part that you are going to use it. There are options without down payment, the taxes usually are paid only for the months you use it, wich are included in your monthly payments, and the financial rate also called money factor that is almost the same to the interest in a Loan.

For example

Leasing a $15,000 car with an estimated resale value of $9,000 after 24 months, you will pay $6,000 and the finance charges and possible fees.

When you buy you pay the total $15,000, plus the finance charges and other fees.

Payments

In a Loan part of your payment is the principal charge and the other is the finance charge (Depending on the interest rate). The principal payment along all the contract should be the same as the car value.

The Lease payment includes a depreciation charge (like the principal charge in a loan) and a finance charge.The depreciation charge part of the monthly payment is equivalent to the value loss of the vehicle accross the lease. The value of the vehicle that has not been paid during the lease is the resale value at the end of the contract for the lease company.

Other fact to consider is tat each depreciate their value in the same amount, no matter if you are in a lease or purchase loan, so in fact, part of the principal charge of paying the vehicle value goes directly to the depreciation of it, so If by the end of the contract you decide to resell the car you will never get back the complete money that you have paid. In other terms the longer that you own and use your car, the less value that it has, so If you own a car until it's practically unsefull the resale value will be really low.

Total Cost

Short-Term Cost: The monthly cost is always lower leasing than buying, even if you get a loan with a low interest rate, the lease payments will be like 30-60% than a loan.

Mid-Term Cost: This one is almost the same considering that at the end of the loan you resell the car, and in the lease you return it, because the resale value will compensate the higher payments during the contract. The difference in the lease could be if you make good investments of the less money that you paid compared to the loan, and also some tax benefits that you can get in the lease.

Long-Term Cost: In this case almost always the purchasing loan is a better option because at the end of the contract you don't have to still paying and you can drive your car for 10 years or more, until the repairs cost could be higher than changing your vehicle.

So you should think wich cost is more important to you in order to make your best choice.