Which Is Best For You? – Forbes Advisor

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If you’re looking to get a new car, you might consider leasing it instead of buying it outright. While car leases typically come with lower monthly payments, you won’t actually own the car. Buying a car, on the other hand, means you’ll be purchasing an asset, which can be worth making higher payments.

Use the calculator below to find out how much both options will cost you per month and over time, help you make the best financial decision.

How to Use the Lease vs. Buy Car Calculator

To use the calculator, you must have some basic information about the car. After plugging these in, you’ll be given the estimate of how much you’ll pay to lease a car vs. buy it, including both monthly and net costs.

Here’s the info you’ll need to gather beforehand:

General Car Information

  • Purchase price: This is the total price you’ll pay after any manufacturer rebates.
  • Down payment: This is how much you plan to put down. While a down payment is often required to get an auto loan, you may not have to provide one for a lease unless you have bad credit. If you do make a down payment on a lease, it will typically be referred to as a capitalized cost reduction.
  • Sales tax: This is the percentage you’ll be charged in sales tax on the purchase. Sales tax is included in each payment on a lease, whereas it’s based on the total sale amount if you buy the vehicle.
  • Annual investment rate of return: This is the return you’d make if you invested your down payment instead of putting it toward a car lease or purchase. The actual rate of return will mainly be contingent on what you’d choose to invest in—for example, a brokerage account versus a regular savings account. Also keep in mind that this will only be an estimate and could actually vary quite a bit, depending on the volatility of your investments.

Buying Information

  • Repayment term: This is the amount of time you’ll spend paying off your auto loan. For car loans, terms typically range from 24 to 84 months.
  • Other Fees: This includes any fees (outside of a down payment) that you must pay at the time of purchase, such as registration or title fees.
  • Interest rate: The basic interest rate on your loan. As of early June 2022, rates on auto loans range from about 4% up to nearly 9%. The rate you’re offered will depend on the individual lender as well as other factors like your credit score and repayment term. In general, the higher your credit score, the better your rate will be.
  • Annual depreciation rate: This is how quickly your vehicle will lose its market value after you buy it. The rate can range from as low as 10% up to 20% or more per year.

Leasing Information

  • Lease term: This is how long your lease will be. Most leases range from 24 to 60 months, though some provide longer term options.
  • Other fees: Like with a car loan, you may have to pay upfront fees with a car lease. For example, this can include an acquisition fee charged by the leasing company or a disposition fee to cover cleaning costs after your lease ends. Plus, just like with buying a car, you’ll also have to cover fees from the Department of Motor Vehicles (DMV) for registration, license plates, etc.
  • Interest rate: As of July 2022, leasing rates can range anywhere from 2% to 15%, depending on the leasing company and your credit score.
  • Security deposit: This is charged to cover any potential damage to the vehicle during your leasing period and typically equates to about one month’s payment. If you return the undamaged car, you’ll likely be able to get this back.
  • Residual value: This is how much the lender or automaker estimates the car will be worth after your lease ends. This is what your monthly payments will be based on. Vehicles with high residual payments typically come with lower lease payments than those that depreciate faster.

Is It Better To Lease Or Buy A Car?

Whether it’s better for you to lease or buy a car will ultimately come down to your personal preferences and financial goals.

Here are the main pros and cons of both options to keep in mind as you weigh your options:

Pros of Leasing a Car

  • Lower payments. You can typically expect lower monthly payments with a lease compared to an auto loan.
  • Spend less on repairs. With a lease, you’ll be able to drive a new vehicle that will usually be covered by the manufacturer’s warranty. Some leases also provide oil changes and maintenance for free.
  • Might not have to put any money down. Leases typically don’t require a down payment (or capitalized cost reduction) unless you have a poor credit.
  • Can drop the car off at the end of the lease. Once your lease is up, you’ll simply take the car back to the dealer. This could be less stressful than having to figure out how to sell or trade in a vehicle you own.
  • Allows for cost-effective variety. If you’re someone who prefers to drive various models of new cars, leasing one every few years could be more cost effective than buying and trading in vehicles.

Cons of Leasing a Car

  • Will always have monthly payments. With an auto loan, you’ll make payments until you’ve paid off your balance. But if you opt to repeatedly lease cars instead of purchasing, you’ll always be stuck with a monthly payment.
  • Limited mileage. Leases always come with a mileage limit—usually 12,000 or 15,000 miles per year. If you exceed this limit, you’ll have to pay penalties. These fees usually range from $0.15 to $0.30 per mile.
  • Insurance could be more expensive. If you lease a car, you’ll likely have to pay for more comprehensive insurance so the leasing company can protect its investment. While dealers typically require the same amount of coverage on a new car, you might save money on insurance if you purchase a used car or work with a private seller.
  • Can be costly to break a lease. In some situations, you might want to break your lease, such as if you’re moving to another country or can’t afford your payments. While you might be able to break a lease without incurring penalties in certain cases (like if you want to buy the car or simply want a different vehicle), you could be charged a heavy penalty—usually the difference between what you still owe on the lease and what the car is worth.
  • Could have to pay for wear and tear. If you don’t maintain the car, you could get stuck with fees after your lease ends. While dealers often allow for some regular wear and tear (like dents and scratches), you’ll likely be charged if the cost to repair damages goes over $1,000.
  • Won’t own the car. Unless you opt to buy out your lease, you won’t own the car after your lease expires. This means you’ll be making payments toward something that isn’t an asset.

Pros of Buying a Car

  • Can build equity. A car’s equity is the difference between what you owe on your auto loan and what the car is worth. If the car’s value is higher than what you owe, you have positive equity, which can help you sell or trade in the car if you want to switch cars before your loan ends.
  • Can sell or trade in the car anytime. If you buy a car, you have the option of selling or trading it anytime you’d like.
  • No mileage limits or post-loan fees. Unlike with a car lease, you don’t have to worry about sticking to a mileage limit if you purchase a car. Additionally, you won’t be charged for wear and tear on the vehicle after you pay the loan off.
  • Insurance could be less expensive. While you’ll have to pay for comprehensive coverage if you buy a new car from a dealer, insurance will usually be less expensive for a used car from a dealer or private seller.
  • Will own the car. Once you pay off your auto loan, you’ll own the car fair and square.

Cons of Buying a Car

  • Must put money down. A down payment is required by most auto lenders. It’s usually recommended to put at least 20% of the car’s purchase price down for a new car and at least 10% for a used car. While you might be able to get away with a smaller down payment, this means you’ll be paying interest on a higher amount for your car loan.
  • Higher monthly payments. Your monthly payments on an auto loan will generally be higher than you’d pay on a lease. You can use our auto loan payment calculator to estimate what your payments would look like.
  • Must cover all repairs. Unless your car is covered by a manufacturer’s warranty, you’ll have to put money aside for any needed repairs.
  • Must cover maintenance costs. Leases often cover maintenance costs, such as oil changes. If you purchase the car, you’ll have to pay for any maintenance yourself, unless you also purchase a warranty. The cost of this can rise as the car gets older, too.
  • More stressful to get into a new car. When a lease ends, you’ll simply drop the car off at the dealer. But after you pay off a car loan, you’ll have to figure out whether you want to sell it or trade it in toward a new car, which can be troublesome.

How Much Does It Cost To Lease A Car?

How much you’ll pay to lease a car will depend on the make and model you choose as well as the interest charged by the dealer. However, you can generally expect to pay less per month than you would with an auto loan. As of the first quarter of 2022, the average car lease payment was $522—$126 less than the average auto loan payment of $648 for a new car, according to Experian.

In addition to monthly payments, there are other factors that will influence your overall cost.

  • Down payment: While car leases usually don’t require a down payment, you might have to pay one if your credit is rocky, which could range up to several thousand dollars. And unlike a down payment on a purchased car, the money you put toward a lease won’t lower your monthly payments.
  • Fees: Leasing a car comes with several potential fees, such as those charged by the leasing company for drawing up the contract and those charged by the DMV for registration. You could also end up with fees once your lease ends, such as those for wear and tear.
  • Sales tax: You’ll have to pay sales tax as part of your monthly payments, unlike a car loan where you have to pay taxes on the total sale amount. How much this will be depends on how much of your state charges.

Use our auto lease calculator to estimate how much leasing a car will cost you.

Is Now a Good Time to Buy a Car?

Car prices have risen as demand has surged and low supplies continue to plague the market. As of May 2022, the average price for a new car was $47,148 while the average price for a used car was $28,312, according to Kelley Blue Book. Unless you can reasonably afford these soaring prices, it might be a more costly time to buy a car.

If you need a car immediately and don’t want to pay full price, leasing could be an option. Also note that trade-in values ​​have increased along with sale prices—so if you have a used vehicle to trade in, you might be able to offset the cost of purchasing another car.

Frequently Asked Questions (FAQs)

Can you lease a car with bad credit?

Yes, you might be able to lease a car with bad credit. Many dealers require a credit score of at least 620 to qualify for a lease, but some cater to borrowers with low or no credit.

Keep in mind that your credit score will affect the interest rate you’re offered. Borrowers with bad credit generally receive much higher interest rates compared to borrowers with good credit. The dealer might also require you to make a down payment as a way to protect themselves if you fail to make your payments.

How long does it take to buy a car?

Buying a car from a dealer could take anywhere from a few hours to several days and depends on several factors, such as how you’ll finance the purchase, how many vehicles you want to test drive and whether you’re trading a car in. This also doesn’t account for the days or weeks you’ll likely spend researching your options and shopping around for a good deal on a loan.

Purchasing from a private seller can sometimes be less costly but you might have to do more legwork in terms of negotiation, inspecting the vehicle and transferring the title.

Ultimately, the car-buying process should take some time so you can make sure you’re happy with the purchase and the financing you choose.

Can you pay the full lease upfront?

Yes, you can pay for an entire car lease upfront. This can save you money on interest as well as help you get approved if you have poor credit.

However, you’ll need to have a large sum saved up that you can use to cover the cost, which could be prohibitive for many potential lessees.


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