Did you know there is a federal Consumer Leasing Act that requires the vehicle leasing to provide information about the costs and terms of a vehicle lease. This information can help you compare lease offers and negotiate a lease that best fits your needs.
You can use this guide to help you compare and contrast leasing a vehicle v. purchasing one.
Lease: You do not own the vehicle. You use it for a specific period of time, then return it at the end of the lease.
Purchase: You own the vehicle. If you finance the purchase, you make payments for the whole purchase price.
Lease: Out-of-pocket costs may include the first month’s payment, a refundable security deposit, a capitalized cost reduction (like a down payment), taxes, registration and other fees.
Purchase: Out-of-pocket costs include the cash price or a down payment, taxes, registration and other fees.
Lease: Monthly lease payments are lower than monthly loan payments because you only pay for using the vehicle. The cost of using it includes depreciation, plus rent (lease) charges, taxes, and fees.
Purchase: Monthly loan payments are higher than monthly lease payments because you are paying for the whole purchase price of the vehicle, plus interest and other finance charges, taxes, and fees.
Early termination costs
Lease: You are required to pay any early termination charges.
Purchase: You are required to pay the balanced owed in full.
Lease: At the end of the lease, you return the vehicle, pay any end-of-lease costs, and walk away.
Purchase: At the end of a loan, you own the vehicle. Most owners will sell or trade their vehicle when they are ready for a new one.
Lease: Future value is agreed and stated in the lease. You do not have to be concerned with the value when the lease is finished.
Purchase: Future value is uncertain and set by the market price at the time you trade or sell the vehicle.
Lease: Most leases limit the number of miles you may drive (usually 12,000-15,000 per year). You can negotiate a higher mileage limit and pay a higher monthly payment. You pay additional charges for driving more miles than the limits agreed upon in your lease.
Purchase: You may drive as many miles as you want. Higher mileage reduces the vehicle’s trade-in or resale value.
Lease: Leases include ordinary use (wear). You will be charged for excessive wear or damage at the end of your lease. For example, coverings you will be charged if you tear the seat covers.
Purchase: There are no limits or charges for excessive wear to the vehicle, however, damage or excessive wear will lower the value of your vehicle.
End of term
Lease: At the end of a lease (most often 2-4 years), you will have to get another vehicle (or purchase the one you leased).
Purchase: At the end of the loan term (typically 4-6 years), you have no further loan payments, and you will be given a clean title.
For both lease and purchase vehicles you will have to pay freight or destination charges, as well as state and local taxes that apply to your vehicle. You also pay for auto insurance. You also pay for maintenance of the vehicle, inspections, registration fees, tires, and late payment charges if you fail to make payments on time.
When negotiating lease offers consider the following
• The purchase price
• The amount of any up-front payments
• The length of the lease
• End-of-lease fees and charges
• The mileage allowed and per-mile charges for excess miles
• The option to purchase either at lease-end or earlier
• “gap” coverage, which protects you if the vehicle is stolen or totaled in an accident
• Insurance for wheels and tires
• An option to purchase the vehicle
Do two things before you lease or purchase a vehicle. Review your budget, figure a comfortable monthly payment, and stick to it. Make sure you ask questions until you are satisfied that you fully understand your obligations. If you do not feel comfortable with this process, you should get a friend or family member to assist you.