How to Lease a Car vs. Buying a Car

The differences and similarities between leasing and buying a car

The application processes for leasing and buying a car are very similar, from shopping to filling out the credit application. When leasing, you do not own the vehicle, although there are significant benefits.

Restrictions

When financing, you can finance as long as you need and drive as much as you want. When leasing, you are subject to mileage restrictions. You have to choose your yearly mileage for a lease, which is usually 12,000 to 18,000 miles a year. A 12,000-miles-per-year allowance offers the lowest monthly payment. Determine what you need and discuss it with the leasing representative to make sure that leasing is right for you. You can expect to be charged about 15 cents for every mile over the leasing limits.

Terms

Chooser your term when leasing or financing. For financing, you can go as long as seven years, which reduces your payment. With leasing, you can choose from a two- to five-year term. Payments for a two-year finance would be incredibly high without significant money down. You also can expect to pay more for a two-year term if choosing a lease, but much less than a finance.

Considerations

Apply for a lease with your future intentions in mind. The lowest payment is for 36 to 39 months, but if you choose a term beyond 36 months you may end up having the car past the expiration of the manufacturer's warranty. Leasing requires that you perform any and all necessary mechanical repairs before the lease is returned, otherwise you are charged for the repairs after the car is turned in.

Misconceptions

Many people will not pay MSRP (manufacturer's suggested retail price) for a car if financing or paying cash. Leasing numbers are figured on MSRP, and are negotiable. When you are shopping for a lease, negotiate the price the same way you would if you were buying. For every $1,000 you negotiate off of the MSRP, you can expect to see a $30 per month reduction in monthly payment.

References

• Edmunds: Buying Tips: Compare the Costs: Buying vs. Leasing vs. Buying a Used Car