When you purchase a vehicle outright, you pay for the entire vehicle up front. Leasing means you pay only for what you use over time with the option to buy at the end. Because lease payments are typically lower than loan payments, you typically can expect to get more car for less money by leasing.
For example, on a $25,000 vehicle, you’d finance the entire $25,000 purchase price. When you lease, you only pay the difference between the car’s price and what it’s expected to be worth at the end of the lease, which is called the residual value. So, if the car’s residual value is 55 percent after three years that means the $30,000 car would be worth $13,750 at the end of the lease. You’d make lease payments on the remaining $11,250 and not the full $25,000.
If you don’t have a large down payment, leasing makes more sense. Vehicle leases usually do require some money up front, but that amount is negotiable. Many advertised lease offers will promote low payments, but require a sizeable down payment. If you want to put as little down as possible, remember that your monthly lease payments will be higher.
Most leases last 36 months or three years, which is typically the length of many new-car bumper-to-bumper warranties. Because of this, the vehicle you are leasing is usually covered under warranty for repairs for the duration of the lease. Though you still need to maintain the car, leasing can help eliminate big-ticket repair costs.
At the same time, leasing allows you to have the newest technology, convenience and safety features. Just like getting a new cell phone every two years, leasing allows you to get a new vehicle every three years – or less.
Finally, with a leased vehicle you don’t have to worry about selling or negotiating for a fair trade-in price. When your lease is up, you simply turn the vehicle in or purchase the vehicle for the residual value.