Car Lease vs. Financing

Car Lease vs. Financing

When considering a lease, the critical element customers should consider is the how often they buy and trade their vehicles.

There are many on-line calculators that will compare a lease payment to a traditional loan payment.  What customers should realize is that leasing and financing are similar only in that they both have a monthly payment.
Customers should determine what method (financing or leasing) would historically support their type of car ownership and not which one has the lowest payment.  Keep in mind, in almost every scenario, leasing a car will provide the customer with a lower payment.  (The exception could be if the lease allows for very high mileage.)

When considering a lease, the critical element customers should consider is the how often they buy and trade their vehicles.  It is important that they be truthful to themselves.  For instance, if you buy a new car and then trade it every three or four years you should consider a lease.  On the other hand, if a you drive a car for six to ten years without trading, leasing may not be a good fit and you should finance the vehicle.
The customers that keep their vehicles for many years will amortize their monthly cost over time.  For example, if you financed a car for three hundred dollars per month for five years and then keep the car for a total of ten years, your cost per month has gone from three hundred dollars to one hundred fifty dollars per month.
$300 per month x 60 months ( 5 years) = $18, 000
$18,000 / 120 months (10 years) = $150 per month
Conversely, if the customer is financing the car, it could cost them more if they trade their vehicle every three years.  Because new cars lose a greater percentage of their value in the first couple years, their monthly payments will not be able to "pay down" the principle balance fast enough and unless the customer made a large down payment, they will be in a position of Inequity. This means that after three years they still owe more than their car is worth and when the customer attempts to trade the vehicle for a new model they will have to pay that deficit.

Unfortunately, many customers will trade their cars every three years in the middle of the car loan and get caught in is a cycle of transferring the inequity on to their new car. This means the customer will be paying a high payment on a lesser car.  A majority of customers will fall into this category because they don't like the idea of leasing.  They will say “I don't like to make payments on something I will not own in the end."  However, they don't own the vehicle when they trade it after three years, the bank does. 
Do not to get caught comparing payments between a lease and loan without first considering these facts.  During negotiations it is easy for dealers to offer a payment that is may fit the customer’s budget but not their trading cycle and in the end that will cost the customer a substantial amount.
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